Investor Protection, Grievance Redressal and Insider Trading
Scope
This domain combines investor grievance machinery with the prohibition on insider trading. The exam tests the SCORES/ODR route, investor protection funds, and the insider-trading concepts of UPSI, connected person, trading window and disclosure.
Core rules
- Investors first complain to the intermediary. If unresolved, they can use SEBI SCORES, SEBI’s complaint redress system. SEBI also promotes online dispute resolution (SMART ODR) and arbitration for eligible disputes. Investor protection funds compensate eligible investors in specified default situations.
- Insider trading is governed by the SEBI (Prohibition of Insider Trading) Regulations, 2015. Unpublished price-sensitive information (UPSI) is information that is not generally available and would materially affect price. Connected persons and deemed connected persons are presumed to have access to UPSI.
- Insiders must not trade while in possession of UPSI. Companies maintain a trading window, pre-clearance for designated persons, code of conduct, restrictions on communication, and disclosures of holdings and trades.
Worked example
A CFO learns on 5 April that quarterly profit has fallen 60%, before the board approves results. On 6 April, before announcement, the CFO sells shares. The information is unpublished and price-sensitive; the CFO is an insider. The sale violates the prohibition, even if the CFO did not use the information “deliberately.” The company should have closed the trading window, and the CFO’s trade should have been pre-cleared only if permitted. SEBI can disgorge profits and impose penalties.
Traps
UPSI is not limited to formal board decisions. “Generally available” is not the same as “known to a few analysts.” A trading window closure does not make all insiders automatically guilty; trading while in possession of UPSI is the key. Do not confuse SCORES with a court; it is a redress platform, not an adjudicatory forum.