Market Abuse vs. Insider Trading-A Perspective

In India’s increasingly vigilant regulatory environment, terms like market abuse and insider trading are often used interchangeably. However, while they are related, they are not the same. Let’s break down how market abuse vs. insider trading are related.
Understanding the distinction—and managing the risks of each—is critical for businesses seeking to build strong compliance frameworks and avoid serious legal, financial, and reputational consequences.

What Is Market Abuse?

Market abuse is a broad term that covers any behavior that harms the fairness, transparency, and integrity of the financial markets.
It includes a range of activities that can mislead investors or artificially influence securities’ prices.

Forms of market abuse include:

• Insider Trading (a subset of market abuse)

• Market Manipulation (such as pump and dump schemes)

• Spreading False or Misleading Information

• Front Running (trading ahead of large client orders)

In India, SEBI’s Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003 and the Prohibition of Insider Trading (PIT) Regulations, 2015 together aim to combat market abuse.

In short: Market abuse = umbrella term for a range of unfair practices.

What Is Insider Trading?

Insider trading is a specific type of market abuse.
It refers to buying, selling, or dealing in securities based on Unpublished Price Sensitive Information (UPSI) that is not available to the general public.

Examples of UPSI include:

• Upcoming mergers or acquisitions

• Financial results before public release

• Major investments or divestitures

• Regulatory approvals or rejections

• Changes in key management personnel

Insider trading is considered one of the most serious forms of market abuse because it gives certain individuals an unfair advantage, damaging market trust.

In short: Insider trading = trading based on confidential, non-public information.

Key Differences Market Abuse Vs. Insider Trading

Insider Trading:

• Narrow scope: specifically about trading on non-public information
• Examples: Buying shares based on confidential earnings report
• Governing Regulations: SEBI PIT Regulations
• Focus: Trading based on UPSI

Why Companies Must Manage Both Risks

Both insider trading and market abuse expose companies to:

• Heavy financial penalties

• Criminal prosecution for individuals

• Regulatory sanctions such as trading bans

• Severe reputational damage

• Loss of investor and stakeholder trust

Moreover, SEBI’s monitoring tools—such as the Integrated Surveillance System (ISS)—are now highly sophisticated, making detection faster and more accurate.

How Companies Can Mitigate the Risks

1. Robust Compliance Policies

Draft clear internal policies that cover both insider trading and broader market manipulation behaviors.
Clearly define what constitutes UPSI, trading windows, restricted lists, and reporting obligations.

2. Regular Employee Training

Conduct regular, mandatory training sessions to educate employees at all levels about:

• Identifying UPSI

• Recognizing signs of market abuse

• Reporting suspicious activities

E-learning programs offer an effective way to deliver this training consistently across locations.

3. Effective Monitoring and Surveillance

Use digital tools and internal audits to monitor employee trading activity and information flows, especially around sensitive announcements.

4. Whistleblower Mechanisms

Create anonymous reporting channels for employees to report concerns about insider trading or market manipulation.

5. Leadership Commitment

Senior management must lead by example, ensuring that ethical behavior and compliance are top priorities.

While insider trading is a serious offense, it is just one part of the broader landscape of market abuse risks facing Indian corporates.
A strong compliance culture, regular digital training, and vigilant monitoring are essential to protecting your organization and maintaining trust in the marketplace.

Need help building a market abuse prevention program tailored for your organization?
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