SEBI (PIT) Insider Trading Compliance and the Structured Digital Database: Regulations 3(5), 3(6), 7 and 9

1. Statutory Overview and Legislative Intent

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) were made under Sections 11(2)(g), 12A(d) and (e) and 30 of the SEBI Act, 1992, following the recommendations of the committee chaired by Justice N.K. Sodhi. Section 12A(d) prohibits any person from engaging in insider trading, and Section 12A(e) prohibits communicating material or non-public information to any other person in a manner contrary to the regulations.

Key definitions

• Unpublished price sensitive information (UPSI), Regulation 2(1)(n): information relating to a company or its securities that is not generally available and that, on becoming generally available, is likely to materially affect the price. It ordinarily includes financial results, dividends, changes in capital structure, mergers, demergers, acquisitions, delisting, disposals and expansion of business, changes in key managerial personnel, and, following SEBI's 2025 amendment, an expanded list of items such as fund raising proposals, significant agreements, regulatory actions, resolution plans and similar events.
• Insider, Regulation 2(1)(g): a connected person, or any person in possession of or having access to UPSI.
• Connected person, Regulation 2(1)(d): any person associated with the company in the six months before the act, including directors, employees, relatives, intermediaries, bankers, auditors and others with access to UPSI, with deemed categories.
• Designated persons: employees and connected persons identified by the board, in consultation with the compliance officer, on the basis of their role and access to UPSI. This always includes promoters, directors, KMP and specified employees of material subsidiaries.

The two central prohibitions

1. Regulation 3: no insider shall communicate, provide or allow access to UPSI, and no person shall procure UPSI, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Regulation 3(2A) requires a board-approved policy for determining legitimate purposes.
2. Regulation 4: no insider shall trade in securities that are listed or proposed to be listed when in possession of UPSI. The burden lies on the insider to prove innocence through the defences in the proviso (for example off-market inter se transfers between promoters in possession of the same UPSI, block deals between such persons, or trades under an approved trading plan).

Regulations 3(5) and 3(6): the Structured Digital Database

The board of directors (or the head of the organisation, for intermediaries and fiduciaries) must ensure that an SDD is maintained containing the nature of UPSI and the names of persons who have shared the information and with whom it has been shared, with PAN or another identifier where PAN is not available. The SDD must be maintained internally, not outsourced, with adequate internal controls and checks such as time stamping and audit trails to ensure that entries cannot be tampered with, and must be preserved for at least eight years after completion of the relevant transactions (longer where SEBI investigations or proceedings are pending).

2. Applicability and Threshold Matrix

3. Step-by-Step Compliance and Filing Workflow

A. Setting up the framework

1. Board approvals: adopt the Code of Fair Disclosure (Schedule A) with a policy for determining legitimate purposes, the Code of Conduct (Schedule B), a policy and procedure for inquiry in case of leak or suspected leak of UPSI, and include leaks in the whistle-blower policy (Regulation 9A(6)).
2. Appoint the compliance officer (ordinarily the company secretary) responsible for the code, pre-clearance, monitoring of trades and reporting to the board and audit committee.
3. Identify designated persons by role, and collect their PAN, demat accounts, names of immediate relatives, persons with whom they share a material financial relationship, phone numbers, and on a one-time basis the names of educational institutions from which they graduated and past employers.
4. Inform designated persons in writing of their status and obtain acknowledgement of the code.

B. Operating the SDD

1. Select a system, not a spreadsheet. The database must have user access controls, non-editable time-stamped entries, an audit trail of every view and change, and the ability to export reports for auditors. Many companies use dedicated software hosted under their own control; this is acceptable if the company maintains it internally and controls access.
2. Create a UPSI event as soon as information becomes UPSI (for example, a draft of quarterly results, a merger proposal at its first internal discussion, a large order under negotiation). Record its nature, date and time of origin, and the owner.
3. Log every sharing: name of the person sharing, name of the recipient, PAN or other identifier, organisation, purpose (the legitimate purpose category), date and time, and mode. Include internal sharing across departments, and external sharing with auditors, bankers, legal advisers, valuers, rating agencies and merchant bankers.
4. Serve notices on recipients that the information is UPSI and that they must maintain confidentiality and comply with the PIT Regulations. External recipients must have confidentiality agreements.
5. Close the event when the information becomes generally available (for example, uploaded on the exchange), recording the date and time.
6. Quarterly review: the compliance officer reviews the SDD and certifies its maintenance as required by stock exchange circulars; the secretarial auditor tests it during the annual secretarial compliance review.

C. Trading window and pre-clearance

1. Close the trading window from the end of every quarter until 48 hours after the declaration of financial results, and also whenever the compliance officer determines that designated persons are reasonably expected to possess UPSI (for example during a material transaction). Communicate closure to all designated persons and to the depositories, which now freeze PAN-level trading for designated persons during closure on the basis of information provided by the company.
2. When the window is open, a designated person who wishes to trade above the code threshold applies for pre-clearance with an undertaking that he or she does not possess UPSI.
3. The compliance officer approves or rejects. An approved trade must be executed within seven trading days, failing which fresh pre-clearance is required.
4. After the trade, the designated person reports execution details within the time required by the code (typically two trading days).

D. Trading plans (Regulation 5)

1. An insider who is perpetually in possession of UPSI (for example a whole-time director) may formulate a trading plan and present it to the compliance officer for approval and public disclosure.
2. Under the amendments notified in late 2024, the plan may begin only after a cool-off period of 120 calendar days from its public disclosure, must cover a period of at least two months and not more than one year, may include price limits within prescribed bands, and must be disclosed to the exchanges within two trading days of approval.
3. Once approved, the plan is irrevocable and must be implemented, subject to limited exceptions specified in the regulation.

E. Disclosures

1. Initial disclosure: within seven days of appointment or becoming a promoter, in Form B.
2. Continual disclosure: within two trading days of the transaction that takes the quarterly value above Rs. 10 lakh, in Form C, to the company.
3. Company to exchange: within two trading days of receipt of a Form C disclosure, or of becoming aware of it. For promoters and promoter group, system-driven disclosures through depositories supplement these filings.

4. Statutory Due Dates and Frequency Table

5. Interest, Late Fees and Penal Consequences

SEBI also runs an informant mechanism under Chapter IIIA of the PIT Regulations, which allows a person to report possible insider trading confidentially and offers a reward of up to Rs. 10 crore in eligible cases. Companies must ensure that no employee is victimised for reporting to SEBI.

6. Practical Audit Pitfalls and Best Practices

• Start the SDD entry at the idea stage. SEBI orders have repeatedly found that UPSI came into existence well before the board meeting, at the stage of preliminary discussions. Late SDD entries undermine the company's defence.
• Do not stop at external parties. Internal sharing of draft results with finance, legal and investor relations teams must be logged. Auditors often find the internal log missing.
• Log PAN, not just names. Without PAN, SEBI cannot match the SDD with trading data, and the company cannot demonstrate compliance.
• Test immutability. Ask the vendor or IT team to demonstrate that an entry cannot be edited or deleted without leaving an audit trail. Keep the test evidence for the secretarial auditor.
• Monitor immediate relatives. The code covers trades by immediate relatives. Obtain consolidated demat holdings statements and reconcile against pre-clearance records.
• Run surveillance on BENPOS data. Compare weekly beneficial ownership data with the designated persons list to catch unreported trades and window violations.
• Train every year. Annual training with attendance records, plus training for new joiners, is a simple but persuasive control.
• Handle leaks formally. If unusual price or volume movement precedes an announcement, run the leak inquiry procedure, document conclusions and inform SEBI as required.

Illustrations

Illustration 1: the leak before the board meeting. A listed company's finance team starts preparing quarterly results on 3 July. On 10 July the CFO emails draft numbers to the statutory auditor and to the investor relations agency. The board approves results on 30 July. The SDD must show the UPSI event from 3 July (or earlier if estimates were discussed), with entries for every finance team member who worked on the numbers and for the auditor and the agency on 10 July, each with PAN and time stamp. If a junior analyst's relative buys shares on 20 July, the SDD tells the company and SEBI whether that analyst had access, and the company's surveillance should have flagged the trade.

Illustration 2: the contra trade. A designated person sells 1,000 shares on 5 February during an open window after obtaining pre-clearance. On 20 June the window is open again and he buys 1,000 shares at a lower price. The purchase falls within six months of the sale and is a contra trade. Unless the compliance officer granted a relaxation for reasons recorded in writing (which cannot be given for trades in breach of the regulations), the profit must be disgorged to the Investor Protection and Education Fund and the matter reported to the stock exchanges.

Illustration 3: the quarterly threshold. A director buys shares worth Rs. 4 lakh in April and Rs. 7 lakh in May. The second trade takes the calendar quarter value to Rs. 11 lakh, crossing Rs. 10 lakh. The director must disclose both trades to the company within two trading days of the May trade, and the company must inform the exchanges within two trading days of receipt.

7. Statutory References and Official Sources