Section 15G of The Securities and Exchange Board of India Act, 1992
If any insider who,—
- (i)either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information; or
- (ii)communicates any unpublished price sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or
- (iii)counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price sensitive information, shall be liable to a penalty 6[which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher].
Summary
- This rule applies to an insider who deals in listed securities using unpublished, price-sensitive information.
- It covers trading done on your own behalf or on behalf of someone else.
- It is illegal to communicate this unpublished information to others, unless it is required in the normal course of business or by law.
- It is also illegal to advise or persuade someone else to trade based on this secret information.
- The minimum penalty is ten lakh rupees.
- The maximum penalty can be twenty-five crore rupees or three times the profit made from the insider trading, depending on which amount is higher.
Practical examples
FAQ
1. What if I only tell my friend the secret but I do not buy any shares myself?
You can still be penalized. The rule strictly punishes communicating unpublished price-sensitive information to anyone, unless it is required by law or normal business duties.
2. What is the lowest fine I can get for insider trading?
The minimum penalty is ten lakh rupees.
3. Can the fine be larger than twenty-five crore rupees?
Yes. If three times the profit you made from the illegal trade is greater than twenty-five crore rupees, you will have to pay that higher amount.
Test yourself
Q1.Under Section 15G of The Securities and Exchange Board of India Act, 1992, which of the following communications by an insider is explicitly permitted?
Q2.Under Section 15G of The Securities and Exchange Board of India Act, 1992, how is the maximum penalty determined if the profit made from insider trading is ten crore rupees?
Q3.Under Section 15G of The Securities and Exchange Board of India Act, 1992, to what kind of securities does the rule about dealing on your own behalf apply?
Q4.If an investor is found guilty of fraudulent practices under Section 15HA, but an executive is found guilty of insider trading under Section 15G of The Securities and Exchange Board of India Act, 1992, how do their minimum penalties compare?