PIT Regulations 2015 — Introduction, Object & Background

Topic 56 — SEBI (PIT) Regulations 2015: Legislative History, Preamble, Structure & Scope | SEBI Law Officer

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) are among the most important and most-examined securities law frameworks for SEBI Law Officer aspirants. They comprehensively prohibit insider trading — the unfair advantage gained by persons with access to price-sensitive non-public information about a company. The 2015 Regulations replaced the 1992 Regulations after a comprehensive review by the T.K. Viswanathan Committee. They introduced major innovations: an expanded definition of UPSI, the legitimate purpose test, the Structured Digital Database (SDD), enhanced Code of Conduct obligations, and a robust enforcement framework. These are tested in every SEBI Law Officer examination.

1. Legislative History — From 1992 to 2015

Year / Event	Development
1992	SEBI (Prohibition of Insider Trading) Regulations, 1992 enacted — first PIT Regulations. Limited definitions; enforcement challenges.
1998	HUL v. SEBI (SAT): landmark case — raised questions about scope of 'insider' and UPSI definitions; exposed gaps in 1992 Regulations.
2002	Amendment to 1992 Regulations — broadened definitions; introduced 'connected persons' concept.
2008	N.K. Sodhi Committee review of insider trading regulations.
2013	T.K. Viswanathan Committee appointed for comprehensive review — identified key gaps in 1992 framework.
2014	T.K. Viswanathan Committee Report — recommended: broader UPSI definition; legitimate purpose test; structured digital database; enhanced Code of Conduct.
2015 (January 15)	SEBI (Prohibition of Insider Trading) Regulations, 2015 notified — replacing 1992 Regulations.
2018-2019	Major amendments — SDD mandatory; trading plan provisions; stronger enforcement.
2022-2024	Further amendments — expanded UPSI categories; finfluencer provisions.

2. Preamble & Object of PIT Regulations 2015

Preamble: In exercise of the powers conferred by Section 30 read with Sections 11 and 12A of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market, SEBI hereby makes these regulations to prohibit insider trading in securities.

The PIT Regulations serve three inter-connected purposes:

Prohibit insider trading: Prevent persons with UPSI from trading in securities and obtaining an unfair advantage over ordinary investors who lack such information.
Protect market integrity: Maintain investor confidence by ensuring the securities market reflects publicly available information — not information asymmetry.
Ensure fair and equal access to information: Listed companies must disclose UPSI to the public — the disclosure framework (LODR) and the PIT trading restrictions work together.

3. Statutory Basis — Section 12A of the SEBI Act

Section 12A(d), (e), (f) — SEBI Act: No person shall directly or indirectly — (d) engage in insider trading; (e) deal in securities while in possession of material or non-public information; (f) communicate or counsel or procure directly or indirectly any person to deal in securities of any body corporate on the basis of unpublished price-sensitive information.

Section 12A(d)-(f) are the primary statutory prohibitions. The PIT Regulations give detailed content to these provisions:

Section 12A(d): prohibition on insider trading → implemented by PIT Regulation 4.
Section 12A(e): prohibition on trading while in possession of UPSI → PIT Regulation 4.
Section 12A(f): prohibition on communicating UPSI → PIT Regulation 3.

4. Structure of PIT Regulations 2015

Chapter / Regulation	Subject Matter
Chapter I (Regs 1-2)	Preliminary — Definitions including 'insider', 'UPSI', 'connected person', 'generally available information'
Chapter II (Reg 3)	Communication or Procurement of Unpublished Price Sensitive Information
Chapter III (Reg 4)	Trading When in Possession of UPSI
Chapter IV (Reg 5)	Disclosures of Trading by Insiders
Chapter V (Reg 6)	Code of Fair Disclosure and Conduct
Chapter VI (Regs 7-9)	Obligations of a Listed Company, Board and Compliance Officer
Schedule A	Principles of Fair Disclosure for Issuers
Schedule B	Minimum Standards for Code of Conduct for Listed Companies
Schedule C	Minimum Standards for Intermediaries and Fiduciaries

5. Key Innovations of the 2015 Regulations over 1992 Regulations

Feature	1992 Regulations	2015 Regulations
Definition of 'insider'	Narrow — limited to connected persons with explicit access	Broader — any person in possession of UPSI (including outsiders who have received UPSI legitimately)
Definition of UPSI	Limited list of price-sensitive matters	Expanded inclusive list + 'generally available information' concept
Legitimate purpose test	Not expressly provided	Regulation 3(3): UPSI may be shared for legitimate purposes — need-to-know basis
Structured Digital Database	Not required	Mandatory — all entities receiving UPSI must be recorded in SDD
Trading Plan	Not provided	Regulation 5: Trading plans allowed — pre-disclosed, irrevocable plans
Code of Conduct	Basic provisions	Schedules B and C: detailed minimum standards; applies to intermediaries too
Pre-clearance	Recommended	Mandatory for trades above specified thresholds
Trading Window	Provided	More detailed — specific closure triggers; blackout period concept

6. The Theoretical Foundation — Why Insider Trading is Prohibited

Insider trading is prohibited for two sets of theoretical reasons:

Fairness theory: It is fundamentally unfair for a person with privileged information to profit at the expense of ordinary investors who lack that information. The securities market must be a level playing field.
Market integrity theory: Insider trading undermines investor confidence in the market — if investors believe the market is rigged by informed insiders, they will withdraw. Market efficiency requires that prices reflect publicly available information.
Property rights theory: UPSI is corporate property — it belongs to the company's shareholders. An insider who uses this property for personal gain breaches their fiduciary duty to shareholders.

7. Relationship between PIT Regulations, PFUTP & SEBI Act

Framework	Relevant Provision	Focus
PIT Regulations 2015	Regulations 3 & 4	Specific prohibition on insider trading; UPSI-based violations; Code of Conduct
PFUTP Regulations 2003	Regulation 3	Connected persons dealing on UPSI — overlapping prohibition; SEBI invokes both
SEBI Act	Section 12A(d)-(f)	Primary statutory prohibition — PIT and PFUTP implement different sub-clauses
SEBI Act	Section 15G	Civil penalty for insider trading — ₹25 crore or 3× profit
SEBI Act	Section 24	Criminal prosecution for insider trading — up to 10 years imprisonment

8. Model Examination Questions

Q1. What is the object of the SEBI (PIT) Regulations, 2015? How do they differ from the 1992 Regulations?

PIT Regulations 2015 — Object & Key Improvements over 1992

Model Answer — The SEBI (PIT) Regulations, 2015 were enacted under Section 30 read with Sections 11 and 12A of the SEBI Act, 1992. Based on the T.K. Viswanathan Committee Report (2014), they replaced the 1992 Regulations with a comprehensive framework. Object: (i) prohibit insider trading — prevent persons with UPSI from trading at the expense of uninformed investors; (ii) protect market integrity — maintain investor confidence; (iii) ensure fair and equal access to information. Key improvements over 1992: (i) Broader 'insider' definition — includes any person in possession of UPSI (not just connected persons); (ii) Expanded UPSI definition with 'generally available information' concept; (iii) Legitimate purpose test (Regulation 3(3)) — UPSI may be shared on need-to-know basis for legitimate purposes; (iv) Mandatory Structured Digital Database (SDD) — all UPSI recipients must be recorded; (v) Trading plans (Regulation 5) — pre-disclosed irrevocable plans exempt from insider trading prohibition; (vi) Detailed Code of Conduct (Schedules B and C) applicable to listed companies AND intermediaries; (vii) Enhanced pre-clearance and trading window provisions. Statutory basis: Section 12A(d)-(f) SEBI Act — PIT implements prohibitions on insider trading, dealing on UPSI, and communicating UPSI.

🎯 EXAM POINTERS — Topic 56: PIT Regulations 2015 Introduction

PIT 2015 enacted under Section 30 SEBI Act + Section 12A (primary prohibition). Based on T.K. Viswanathan Committee (2014).
PIT 2015 replaced PIT 1992 — effective from January 15, 2015.
Section 12A(d): insider trading prohibition. (e): dealing while in possession of UPSI. (f): communicating UPSI.
PIT implements Section 12A(d)-(f). PFUTP Regulation 3 also covers UPSI-based trading — both often invoked together.
Key innovations: broader 'insider' definition; expanded UPSI; legitimate purpose test; SDD; trading plans; Code of Conduct (Schedules B & C).
Penalty: Section 15G SEBI Act — ₹25 crore OR 3× profit (whichever HIGHER). Criminal: Section 24 — 10 years.
Three theories justifying PIT prohibition: Fairness; Market Integrity; Property Rights (UPSI = corporate property).
HUL v. SEBI (1998 SAT): landmark case exposing gaps in 1992 Regulations — catalyst for eventual 2015 overhaul.
SDD mandatory (post-2018 amendment): all entities receiving UPSI must be recorded with timestamps.
Structure: Chapter II (Regulation 3 — communication) + Chapter III (Regulation 4 — trading) + Chapter V (Code of Conduct) + Schedules B & C.

← Topic 55: MCQ Practice Set — SAST Regulations 2011 | Next → Topic 57: PIT Definitions — UPSI, Insider, Connected Person [Regulation 2]

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