The Trading Ban and Its Limited Defences
4. The trading ban and its limited defences
An insider must not trade listed or proposed-to-be-listed securities while possessing UPSI. Such trades are presumed to have been motivated by the information. Personal reasons for trading, or plans for the money raised, do not answer the allegation.
Trading goes beyond buying and selling. It includes subscribing, redeeming, switching, other dealings such as pledging securities, and agreements to do these things. Redemption and switching were expressly added from 1 November 2024.
Connected persons must show they did not possess UPSI. In other cases, SEBI bears that burden. The insider-definition explanation also recognises initial proof of possession or access, followed by the opportunity to rebut the allegation or establish an exception.
Conditional defences include:
- An informed off-market transfer, made directly between insiders holding the same UPSI rather than through exchange trading.
- A qualifying block deal, carried out through the exchange’s special block-deal window between informed parties holding the relevant UPSI. This is a particular trading mechanism, not permission for any privately agreed transaction.
- A genuine transaction required by law or regulation.
- Exercising stock options at a predetermined, regulation-compliant price.
- An organisation showing effective separation between information holders and trading decision-makers.
- Trading under a compliant, approved trading plan.
For the off-market and block-deal defences, the parties must make conscious, informed decisions. Their possession of information must not breach the sharing rules, and the UPSI cannot come from the special transaction-sharing arrangements described earlier.
Qualifying off-market trades must be reported to the company within two working days. The company reports to exchanges within two trading days of receiving the disclosure or otherwise learning about them.
An organisation relying on separation must show that different people held the information and made trading decisions, decision-makers lacked UPSI, adequate safeguards prevented communication and violations, and there is no evidence those safeguards failed.
An open trading window or internal approval does not override the possession-based ban. A trading plan is not blanket immunity either: manipulating publication of information to make planned trades profitable can lead to market-abuse proceedings.