MCQ Practice Set — PIT Regulations 2015

Topic 68 — 60 Exam-Standard MCQs with Answers & Explanations | SEBI Law Officer & Judiciary Exams

This MCQ Practice Set covers all topics from Topics 56–67 (SEBI (PIT) Regulations, 2015). Questions span three difficulty levels — Foundation (F), Intermediate (I), and Advanced (A). This set is designed to mirror the pattern of SEBI Grade A Phase 2 Paper — each answer has a detailed explanation referencing the relevant regulation or case. Complete this practice set after finishing all PIT study notes for maximum benefit.

Section A — Foundation Level (Questions 1–10)

1. The SEBI (Prohibition of Insider Trading) Regulations, 2015 were enacted under:

(A) Section 11B and Section 30 of the SEBI Act
(B) Section 30 read with Sections 11 and 12A of the SEBI Act
(C) Section 12A and Section 24 of the SEBI Act
(D) Section 15G and Section 30 of the SEBI Act

Answer: (B) PIT 2015 were enacted under Section 30 (regulation-making power) read with Sections 11 (SEBI's functions) and 12A (primary prohibitions on insider trading) of the SEBI Act.

2. The PIT Regulations, 2015 replaced the earlier regulations of which year?

(A) 1988
(B) 1992
(C) 2002
(D) 2008

Answer: (B) The PIT Regulations, 2015 replaced the SEBI (Prohibition of Insider Trading) Regulations, 1992. They came into force on January 15, 2015.

3. 'Unpublished Price-Sensitive Information' (UPSI) is defined under PIT Regulations 2015 in:

(A) Regulation 2(1)(g)
(B) Regulation 2(1)(n)
(C) Regulation 2(1)(d)
(D) Regulation 4(1)

Answer: (B) UPSI is defined in Regulation 2(1)(n) — information relating to a company/securities, not generally available, which upon becoming generally available is likely to materially affect price.

4. 'Generally Available Information' (GAI) under PIT Regulations 2015 means information that is:

(A) Available to institutional investors
(B) Accessible to the public on a non-discriminatory basis
(C) Available in any public library
(D) Shared with analysts before market hours

Answer: (B) Regulation 2(1)(e): GAI means information accessible to the public on a NON-DISCRIMINATORY BASIS — i.e., available to ALL persons equally, not selectively.

5. 'Insider' under PIT Regulations 2015 includes: (i) a connected person; and (ii) any person in possession of or having access to UPSI. Which statement is CORRECT?

(A) Both (i) and (ii) are required simultaneously
(B) Either (i) or (ii) independently qualifies as an insider
(C) Only (i) qualifies — outsiders cannot be insiders
(D) Only (ii) qualifies — connection is irrelevant

Answer: (B) Regulation 2(1)(g): 'Insider' means a connected person OR any person in possession of/having access to UPSI — EITHER independently qualifies. An outsider who receives UPSI becomes an insider.

6. Under PIT Regulation 2(1)(d), a 'connected person' includes a person who was associated with the company in the preceding:

(A) 3 months
(B) 6 months
(C) 1 year
(D) 2 years

Answer: (B) Regulation 2(1)(d): six-month look-back period — a person who was associated in any capacity in the 6 MONTHS PRECEDING the concerned act remains a 'connected person'.

7. Which of the following is expressly listed as UPSI under Regulation 2(1)(n) of the PIT Regulations 2015?

(A) Change in RBI repo rate
(B) Merger, de-merger, or acquisition by the company
(C) General industry outlook
(D) Appointment of a district court judge

Answer: (B) Regulation 2(1)(n)(iv) expressly lists 'mergers, de-mergers, acquisitions, delistings, disposals and expansion of business' as UPSI. The other options are not company-specific or not price-sensitive in the PIT sense.

8. Under the PIT Regulations, the prohibition on communicating UPSI is contained in:

(A) Regulation 2(1)(n)
(B) Regulation 3(1)
(C) Regulation 4(1)
(D) Regulation 5

Answer: (B) Regulation 3(1): prohibition on COMMUNICATION of UPSI (tipper side). Regulation 4(1): prohibition on TRADING while in possession of UPSI. Regulation 5: Trading Plans.

9. The Structured Digital Database (SDD) requirement under PIT Regulations is prescribed in:

(A) Regulation 3(1)
(B) Regulation 3(5)
(C) Regulation 4(1)
(D) Schedule B Clause 4

Answer: (B) Regulation 3(5): SDD — board of directors of every listed company and every intermediary must maintain a Structured Digital Database with time-stamping and audit trails.

10. The civil penalty for insider trading under the SEBI Act is prescribed in:

(A) Section 15A
(B) Section 15E
(C) Section 15G
(D) Section 15HA

Answer: (C) Section 15G SEBI Act prescribes the civil penalty for insider trading: minimum ₹10 lakh — maximum ₹25 crore OR 3× profit from insider trading, whichever is HIGHER.

Section B — Intermediate Level (Questions 11–20)

11. Which of the following does NOT constitute UPSI under PIT Regulations 2015?

(A) Board's decision to declare dividend (before stock exchange announcement)
(B) Quarterly financial results (before filing with exchanges)
(C) Research report based entirely on publicly available information
(D) Impending merger (known to company management, not yet announced)

Answer: (C) A research report based entirely on publicly available information is not UPSI — it fails the 'not generally available' test since it is derived from GAI. The other three items are all company-specific, non-public, and price-sensitive.

12. An executive director of a listed company resigned 4 months ago. He now wants to trade in the company's shares. Under PIT Regulations 2015, is he an 'insider'?

(A) No — he has resigned and has no connection to the company
(B) Yes — he is a 'connected person' under the six-month look-back rule
(C) No — only current directors are covered
(D) Yes — only if he is still in possession of UPSI

Answer: (B) Regulation 2(1)(d): Six-month look-back — a person who was connected in the 6 months preceding the act is a 'connected person' (and therefore an insider under Regulation 2(1)(g)). 4 months is within the 6-month window — he remains a connected person/insider.

13. Under Regulation 3(3) of the PIT Regulations 2015, which of the following is a 'legitimate purpose' for sharing UPSI?

(A) Sharing quarterly results with a relative for their investment decision
(B) Sharing draft M&A documents with the target's legal adviser under NDA for transaction advisory
(C) Sharing management projections with a friend at a dinner conversation
(D) Leaking results to a journalist for an exclusive story

Answer: (B) Sharing M&A documents with the target's legal adviser under NDA for transaction advisory = legitimate purpose. Legal advice on a transaction is expressly a legitimate purpose under Regulation 3(3). The other three are not legitimate.

14. Under Regulation 3(5) of PIT Regulations, the SDD must contain, among other things:

(A) Only the names of company insiders (directors and KMP)
(B) Names, PANs, and date-time stamps of all persons to whom UPSI is communicated
(C) Only the names of persons to whom UPSI is communicated illegitimately
(D) Transaction details of all trades by connected persons

Answer: (B) Regulation 3(5) SDD must contain: name of UPSI recipient + PAN + category of UPSI + date-time stamp + nature of connection + restrictions communicated. It covers ALL UPSI recipients (including legitimate ones).

15. An insider who holds UPSI about Company X's upcoming positive results and wants to avoid insider trading liability should:

(A) Wait until UPSI becomes generally available (filed with stock exchange) before trading
(B) Trade immediately before the results are announced to exploit the information
(C) Communicate the UPSI to 3 friends and then trade through them
(D) Request the compliance officer to place the trade on their behalf

Answer: (A) The correct action: wait until the UPSI becomes GENERALLY AVAILABLE (filed with the stock exchange + 48 hours for market absorption before trading window reopens). Only when UPSI = GAI can the insider trade without violation.

16. Under the Explanation to Regulation 4(1) of PIT Regulations 2015, if a connected person in possession of UPSI trades in the relevant securities, which presumption applies?

(A) The person is presumed to have NOT traded on the basis of UPSI
(B) The person is DEEMED to have traded on the basis of UPSI unless the contrary is demonstrated
(C) SEBI must prove beyond reasonable doubt that trading was on the basis of UPSI
(D) No presumption applies — SEBI has the full burden of proof

Answer: (B) Explanation to Regulation 4(1): Connected person + possession of UPSI + trade = DEEMED to have traded on the basis of UPSI. The REVERSE BURDEN shifts to the accused to prove they did NOT trade on the basis of UPSI. Confirmed in SEBI v. Balram Garg (2022 SC).

17. The standard of proof in SEBI civil adjudication proceedings for insider trading is:

(A) Beyond reasonable doubt
(B) Preponderance of probability
(C) Balance of probabilities (no difference from preponderance)
(D) Prima facie case only

Answer: (B) SEBI v. Kishore R. Ajmera (2016) 6 SCC 368: The standard in SEBI civil/adjudication proceedings is PREPONDERANCE OF PROBABILITY — not beyond reasonable doubt (which applies to criminal prosecution under Section 24).

18. Under PIT Regulation 5, a Trading Plan must have a minimum cooling-off period before the first trade under the plan of:

(A) 30 days
(B) 3 months
(C) 6 months
(D) 1 year

Answer: (C) Regulation 5: Trading plan cooling-off period = MINIMUM 6 MONTHS between plan approval/disclosure and the first trade under the plan.

19. Which of the following cases held that the communication of merger-related information did NOT constitute insider trading under the 1992 PIT Regulations?

(A) SEBI v. Samir Arora
(B) Hindustan Lever Ltd. v. SEBI
(C) SEBI v. Balram Garg
(D) SEBI v. Kishore R. Ajmera

Answer: (B) HUL v. SEBI (1998 SAT): SAT set aside SEBI's order — merger information was not clearly 'price-sensitive information' under the 1992 Regulations. This gap was expressly closed by PIT Regulations 2015.

20. The minimum civil penalty for insider trading under Section 15G of the SEBI Act is:

(A) No minimum — fully discretionary
(B) ₹1 lakh
(C) ₹5 lakh
(D) ₹10 lakh

Answer: (D) Section 15G: mandatory MINIMUM penalty = ₹10 LAKH. Maximum = ₹25 crore OR 3× profit (whichever higher). This mandatory minimum distinguishes Section 15G from some other SEBI Act penalty provisions.

Section C — Advanced Level (Questions 21–25)

21. CFO of Company Y knows that the company's quarterly results (to be announced in 3 weeks) will show a 50% decline in profits. The CFO sells his entire holding of Company Y shares through his wife's demat account. Under PIT Regulations 2015, which of the following CORRECTLY describes the position?

(A) Only the CFO is liable — the wife's account was used without her knowledge
(B) Only the wife is liable — the trade was in her name
(C) Both CFO and wife may be liable — CFO as tipper/procurer; wife as trader on UPSI
(D) The CFO is not liable as he did not personally trade

Answer: (C) The CFO communicated UPSI to his wife (or procured trading through her account) — violation of Regulation 3(1)/(3(2). The wife traded on UPSI — violation of Regulation 4(1). Both are liable. Trading through a family member's account does not provide cover.

22. Company Z (listed) is in advanced M&A negotiations. The CEO shares detailed financial projections (UPSI) with potential acquirer's due diligence team under a signed NDA. All team members are entered in the SDD. One due diligence team member (an analyst at the acquirer) then buys shares of Company Z in the market. Under PIT Regulations:

(A) No violation — the UPSI was shared for a legitimate purpose (M&A due diligence)
(B) The CEO violated Regulation 3 — UPSI cannot be shared for any reason
(C) The analyst violated Regulation 4 — trading while in possession of UPSI
(D) Both (A) and (C) — the sharing was legitimate but the analyst's trading is a violation

Answer: (D) The CEO's sharing was legitimate (M&A due diligence, under NDA, with SDD entry) — so the CEO did NOT violate Regulation 3. However, the analyst who received UPSI (legitimately) became an insider. The analyst's subsequent trading in Company Z's shares violates Regulation 4(1) — trading while in possession of UPSI. Answer (D): CEO sharing = legitimate; analyst trading = violation.

23. Under PIT Regulations 2015, a Compliance Officer who fails to maintain the SDD and also fails to report suspected insider trading within the company to SEBI can be held:

(A) Liable only through the company — no personal liability for CO
(B) Personally liable under SEBI Act — as confirmed in SEBI v. Sourabh Lohia (2020)
(C) Not liable — CO's obligations are limited to the Code of Conduct only
(D) Liable only if they personally benefited from the insider trading

Answer: (B) SEBI v. Sourabh Lohia (SEBI Order 2020): SEBI penalised the CO individually for failure to maintain SDD and failure to report suspected violations. The CO has PERSONAL regulatory obligations under PIT Regulations — they cannot take shelter behind the company.

24. Promoter P of a listed company holds 35% shares. The company's board is considering (not yet decided) a substantial write-down of assets — which if announced would significantly reduce the share price. P sells 10% of his holding on the market. He is charged with insider trading. P's defence is that the board had not yet formally decided on the write-down. Is this a valid defence under PIT 2015?

(A) Yes — there can be no UPSI until the board formally decides
(B) Yes — the information was speculative and not price-sensitive
(C) No — internal management information about a material contemplated decision can constitute UPSI; P as promoter is a connected person with reverse burden
(D) No — a promoter can never sell shares while the board is in session

Answer: (C) Under PIT 2015, UPSI does not require a formal board decision — information about a CONTEMPLATED material decision that is company-specific, non-public, and likely to materially affect price can be UPSI. In SEBI v. Abhijit Rajan (Gammon India, 2015), internal management knowledge of adverse developments = UPSI. P as promoter = connected person; Explanation to Regulation 4(1) reversal of burden applies — P must show they did not trade on the basis of UPSI.

25. In which of the following scenarios does a VALID trading plan under Regulation 5 of PIT 2015 provide a COMPLETE DEFENCE against insider trading charges?

(A) The insider formulates a plan AFTER receiving UPSI about an upcoming positive announcement
(B) The insider formulates a plan 7 months before any related UPSI arises, publicly discloses it, and executes it during an open trading window
(C) The insider modifies the plan after receiving UPSI to increase the trade size
(D) The insider formulates a plan but does not publicly disclose it to the stock exchange

Answer: (B) A valid Regulation 5 trading plan: (i) formulated WITHOUT possession of relevant UPSI; (ii) irrevocable; (iii) publicly disclosed on stock exchange; (iv) minimum 6-month cooling-off period; (v) executed during open trading window. Option B satisfies all conditions. Options A (formulated with UPSI), C (modified after UPSI), and D (not disclosed) all fail the validity test.

🎯 QUICK ANSWER KEY — PIT Regulations 2015 MCQ Set (Topics 56-67)

1-B 2-B 3-B 4-B 5-B
6-B 7-B 8-B 9-B 10-C
11-C 12-B 13-B 14-B 15-A
16-B 17-B 18-C 19-B 20-D
21-C 22-D 23-B 24-C 25-B

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