Sebi chief Pandey wants banks to help curb insider trading
Mumbai, Sep 3, 2025
Pandey said adherence to the prohibition of insider trading regulations is not a matter of routine compliance but a cornerstone of good governance and ethical leadership.
Sebi chairman Tuhin Kanta Pandey has underscored the critical role of banks in upholding market integrity, urging their leaders to tighten compliance so that the menace of insider trading can be curbed.
At an interaction with the heads of publicly traded banks here Wednesday, Pandey said adherence to the prohibition of insider trading (PIT) regulations is not a matter of routine compliance but a cornerstone of good governance and ethical leadership.
“When a small group of people has access to information before the rest of the market and uses it for personal gains, it creates an uneven playing field. Investors lose confidence, market fairness erodes, and the very integrity of the financial system comes into question,” he told the bankers.
He highlighted that banks face a unique challenge under PIT regulations as they carry a dual responsibility: not only they must they comply as listed entities, but they also act as fiduciaries holding unpublished price-sensitive information (UPSI) about other listed companies.
Citing examples where banks gain access to sensitive financial information, such as during large loan sanctions, debt restructuring negotiations, or participation in stressed asset proceedings, well before such data is publicly disclosed, he said “all this information, if leaked even unintentionally, could move markets, impact shareholder wealth, and erode investor trust.”
Emphasizing the importance of strong internal controls, Pandey referred to a recent KPMG study that identified whistle-blower tipoffs and management reviews as the most effective tools in detecting corporate fraud. Weak internal frameworks, he said, remain the prime reason behind violations.
“Insider trading risks thrive where controls are weak, where processes are unclear, responsibilities are undefined, and oversight is inconsistent. This is why Sebi has mandated robust, auditable, and transparent internal control systems, including a code of conduct for prevention of insider trading,” he noted.
"A strong internal control framework ensures that every piece of UPSI is accounted for, who holds it, who shares it, and under what circumstances. Every disclosure is timely and accurate, leaving no room for ambiguity or delay. Every employee understands their responsibilities, through clear codes of conduct, written policies, and periodic training," the chairman said.
Pandey placed special emphasis on the role of the structured digital database (SDD), describing it as the “cornerstone of compliance.” Listed banks, he said, are required to maintain two sets of SDDs—one for their own internal UPSI and another for UPSI held in fiduciary capacity for other companies.
"When a regulatory authority comes knocking, your ability to instantly and comprehensively demonstrate who knew what, and when, will be your greatest defense. It is the SDD that demonstrates whether your bank acted with integrity, discipline, and full transparency and Sebi views SDD noncompliance with zero tolerance," he said.
Explaining that SDD creates a clear, auditable trail of every instance where sensitive information changes hands, he said when employees and executives know that every UPSI transaction is logged and traceable, the risk of leaks or insider trading reduces significantly.
Calling the role of compliance officers “crucial,” he said boards must empower them with adequate authority, training, and leadership backing, rather than treating the position as symbolic.
Pandey also urged banks to leverage technology to strengthen compliance. He encouraged banks to adopt technology-driven solutions to monitor trades. Other measures such as centralized pre-clearance portals and digital training platforms, he said, could make compliance smoother while building a clear audit trail.
Urging bankers to become “the models of transparency, integrity, and ethical leadership,” he said they should be setting the benchmarks not just in compliance but in overall governance across the financial ecosystem.
It may be noted that Sebi had banned the ex-top honchos of Indusind Bank for violating insider trading norms. They allegedly traded in the bank’s shares while in possession of unpublished price-sensitive information related to discrepancies in account balances of the bank's derivative portfolio.
[The New Indian Express]
