Financial Markets & Securities Regulation in India

Financial Markets & Securities Regulation in India (2026): Insider Trading, Conduct Risk, Internal Controls & Enforcement

India’s capital markets are deep, fast, and increasingly surveillance-driven. If you’re a listed company, an intermediary (broker, AMC, PMS/AIF, IA/RA), or a deal-facing team, “securities regulation” is no longer just a legal checklist—it’s an operating system: how you disclose information, manage conflicts, stop leaks, control employee trading, and prove governance under scrutiny.

This guide focuses on the four pressure points that typically trigger SEBI action and reputational damage:

• Insider trading compliance
• Conduct risk
• Internal controls (including cyber resilience and surveillance)
• Enforcement actions and what SEBI actually looks for

What Governs Securities Conduct?

At a high level, your compliance program usually has to align to:

• SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT)—updated through March 12, 2025.
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)—updated through December 16, 2025.
• SEBI’s enforcement ecosystem: investigations, adjudication, settlement, directions, and disgorgement—visible through SEBI’s continuously updated Orders repository.
• For many SEBI-regulated entities, cyber governance and resilience expectations are formalized through the Cybersecurity and Cyber Resilience Framework (CSCRF) (Aug 20, 2024) and subsequent clarifications (Aug 28, 2025).

This matters because SEBI increasingly assesses systems—not just policies.

Insider Trading Compliance

1. The Real Objective: Stop “UPSI Drift,” Not Just “Trades”

Most insider trading failures don’t start with a rogue trade. They start with Unpublished Price Sensitive Information (UPSI) quietly drifting across teams: deal teams → research/sales → broking/syndicate → external calls → market rumors.

A modern PIT program is designed to prevent and prove prevention of:

• Leakage of UPSI
• Trading while in possession of UPSI
• Improper communication of UPSI
• Weak “need-to-know” controls

SEBI’s recent scrutiny of information-barrier failures in a large block-trade context shows how seriously it views internal confidentiality controls (so-called “Chinese walls”).

2. The Compliance Building Blocks That SEBI Expects (Practically)

Here’s what consistently separates “policy-only” compliance from “audit-ready” compliance:

A. Governance & accountability

• Clearly identified compliance officer / designated officer
• Defined escalation matrix for leaks, suspected trades, and rumor control
• Board/Audit Committee visibility for repeated breaches

B. UPSI identification and “who knows what” mapping

• Deal/event taxonomy: results, M&A, fundraising, major litigation, major order wins/losses, regulatory actions, etc.
• Live UPSI register and insider list per event (with timestamps)
• “Need-to-know” access approval trail

C. Trading controls that actually work

• Pre-clearance workflow for designated persons
• Trading window closure logic tied to events (not just calendar quarters)
• Contra trade monitoring, threshold-based alerts, and exception handling

D. Evidence discipline
If you can’t evidence it, it didn’t happen. Your program should generate:

• System logs (access, downloads, email forwarding patterns where applicable)
• Pre-clearance approvals/denials
• Insider list creation and closure timestamps
• Meeting minutes and wall-crossing records for investors/advisers

3. Common Failure Modes & How to Fix Them?

Failure mode: “We have a code, but people don’t follow it.”
Fix: Convert PIT into operational controls: automated trading-window logic, mandatory tool-based pre-clearance, and enforcement of access control.

Failure mode: UPSI shared “informally” during fundraising or block trades.
Fix: Wall-crossing playbook + scripted disclosures + restricted distribution lists + call logs and Q&A control.

Failure mode: Advisors/intermediaries treat information barriers as “policy text.”
Fix: Role-based system access, monitored communications for restricted projects, and periodic testing (including mock leak drills).

Conduct Risk: The Hidden Driver Behind Most Enforcement Pain

Conduct risk is the risk that behaviors—of individuals or teams—harm investors, market integrity, or clients (mis-selling, conflict-driven advice, research bias, selective disclosure, manipulation, abusive trading, etc.).

Why it matters now:

• Regulators increasingly view culture and incentives as root causes.
• “No intent” is not a reliable defense if controls were weak and outcomes harmed fairness.

The Four Conduct-Risk “Hot Zones” in Indian Markets

1. Conflicts of interest (research vs investment banking, distribution vs advisory, proprietary trading vs client orders)
2. Sales practices (misleading risk statements, inappropriate product suitability)
3. Market conduct (front-running risk, information misuse, rumor pushing)
4. Complaints & redress (patterns indicate systemic conduct issues)

Practical Conduct-Risk Controls You can Implement

• Conflict mapping by product and revenue line (not generic)
• Incentive hygiene: review variable pay linkages that reward mis-selling
• Call scripts + recorded sampling in high-risk products
• Root cause analysis on complaints (repeat issues = control failure)

If you’re serious about conduct risk, don’t start with training. Start with incentives, controls, and monitoring.

Internal Controls: The “Proof Layer” SEBI Cares About

In 2026, internal controls for securities compliance are not limited to finance and approvals. They include technology controls, cyber resilience, and surveillance readiness—especially for SEBI-regulated entities that fall under formal cyber frameworks.

1. Internal Controls that Reduce “Market Integrity” Risk

• Segregation of duties (deal teams, research, execution, access rights)
• Access controls for sensitive deal folders, shared drives, data rooms
• Restricted list / watch list governance
• Communication controls for restricted projects (policy + testing)

2. Cyber Resilience is Now a Compliance Control, not an IT Upgrade

SEBI’s CSCRF establishes structured expectations for cybersecurity and resilience for SEBI-regulated entities, with later technical clarifications—meaning cyber controls can directly become a regulatory exposure, not just an operational one.

What this means in practice:

• Your cyber program must be audit-ready: defined scope, tested controls, evidence packs, closure tracking.
• “We are ISO certified” is not equal to “we meet SEBI cyber expectations.”

3. The Control Design SEBI Trusts

Think in three lines:

• Preventive controls (access restriction, pre-clearance, segregation)
• Detective controls (alerts, surveillance, exception reports)
• Responsive controls (incident handling, disciplinary action, remediation)

Enforcement Actions: How SEBI Builds Cases and How to Stay Out of Them?

1. Enforcement is Continuous — and Publicly Visible

SEBI’s enforcement page shows the scale and frequency of adjudication and other orders—new entries appear routinely, which reflects an active enforcement environment.

2. What SEBI Typically Tests During Investigations?

Expect scrutiny on:

• Timelines: who knew what, and when
• Communication trail: emails, chats, calls, meeting invites
• Access trail: file access, data-room permissions, downloads
• Trading trail: linked accounts, related parties, patterns around events
• Internal responses: did you investigate promptly and preserve evidence?

3. Recent Signals from the Market (Why Controls Matter?)

• SEBI action in a case involving alleged insider trading by public officials tied to a market-moving policy decision highlights how aggressively it can pursue profit disgorgement and market access restrictions.
• SEBI’s scrutiny of alleged information-sharing and weak internal confidentiality controls in a block trade context shows enforcement isn’t limited to “classic” insider trading—information-barrier lapses themselves can become the story.

4. Settlement vs Contest: Know the Mechanism

SEBI also has a formal settlement framework (Settlement Proceedings Regulations, last amended Nov 28, 2024).

Whether settlement is appropriate depends on facts, evidence strength, reputational risk, and business constraints—but you should be prepared for either path before you receive a notice.

A “Board-Ready” Solution Blueprint

If you want an actionable path that works for listed companies and market intermediaries, implement in this order:

Phase 1: Risk Discovery (2–4 Weeks)

• Identify UPSI-generating processes (results, deals, material events)
• Map data flows and access points
• Review employee trading and pre-clearance effectiveness
• Detect control gaps in research/sales/deal separation

Phase 2: Control Redesign (4–8 Weeks)

• Build event-based UPSI governance (insider lists + access controls)
• Implement restricted/watch list workflows and surveillance alerts
• Deploy enforceable pre-clearance and window closures
• Add conduct-risk controls around conflicts and incentives

Phase 3: Evidence Readiness + Testing (Ongoing)

• Run periodic testing: mock leak drills, exception trend reviews
• Quarterly board reporting with metrics (not narratives)
• Maintain investigation playbooks and legal hold procedures

1. Is insider trading only about buying/selling shares?
No. SEBI scrutiny often extends to communication of UPSI, weak information barriers, and control failures that allow unfair advantage.

2. What is the most overlooked insider trading control?
A live, timestamped insider list + access evidence per event. Without it, you struggle to prove containment.

3. What should a company do the moment a leak is suspected?
Trigger legal hold, preserve logs, freeze relevant access, investigate quickly, and document actions with timestamps. The “delay” itself becomes a weakness in enforcement narratives.

4. Do cybersecurity controls matter for securities regulation?
Yes—especially for SEBI-regulated entities covered under cyber resilience frameworks, where cyber maturity becomes a compliance and audit exposure.

If you’re a listed company, intermediary, or a deal-heavy business and you want an audit-ready, evidence-first program for PIT compliance, conduct risk, and internal controls, Prgenix offers structured implementation and readiness support—especially around DPDP/cyber-aligned governance and board-grade documentation.

Next Step: Ask for a rapid exposure scan (PIT + Conduct + Controls) that identifies your highest-risk gaps, gives you a prioritized remediation plan, and sets up an evidence tracker your team can actually run.