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The Securities and Exchange Board of India’s (Sebi’s) interim order against eight individuals for alleged insider trading in the shares of Indian Energy Exchange (IEX) has set several precedents — from being among the largest and swiftest such actions to potentially widening scrutiny to senior officials at the power regulator.
₹173-cr impounding marks Sebi’s biggest insider trading order
In a 45-page order issued on October 15, Sebi directed the impounding of ₹173 crore in “ill-gotten gains” from eight individuals linked to senior officials at the Central Electricity Regulatory Commission (CERC) and bureaucratic circles. The regulator alleged they took bearish positions based on insider information ahead of a key policy announcement that triggered a near 30 per cent stock price fall in IEX, whose contracts are also traded in the derivatives segment.
The trades were executed in July, and Sebi later initiated suo motu action, conducting search and seizure operations in September.
Investigators reportedly identified the individuals based on concentrated trading activity around the announcement and their put-option contracts. Within a month, the regulator analysed messages (including those between the astrologer and the key accused) and other evidence to establish links between the informants and the traders, leading to findings of insider trading.
CERC officials under the lens
Legal experts said the case is unusual as it also raises questions about the code of conduct for senior CERC officials. Sebi alleged that Yogieta S. Mehra, chief of the commission’s economics division, and deputy chief Gagan Diwan had shared confidential information on “market coupling” prior to CERC’s policy announcement on July 23.
Listed companies are required to maintain structured digital databases logging every person in possession of unpublished price-sensitive information (UPSI). However, such a requirement does not extend to regulatory bodies, creating a grey area.
“The UPSI here pertains to a government policy that affects an entire industry, unlike typical insider trading cases where the information impacts one or two firms,” said Aditya Bhansali, founding partner at Mindspright Legal. He warned that categorising policy decisions as UPSI could set a concerning precedent with unintended consequences.
Experts also noted that the interim order currently targets only the eight traders to ensure their gains remain within regulatory reach.
Sebi reinforces accountability and deterrence
Sebi Whole-Time Member Kamlesh Chandra Varshney observed in his order that any instance where a few individuals create information asymmetry in an otherwise fair market could erode investor confidence and jeopardise market integrity.
“Under existing jurisprudence, liability for tipping UPSI does not require personal trading; exposure under Regulation 3(2), Section 12A, and departmental disciplinary rules remains open,” said Amit Tungare, managing partner at Asahi Legal. He cited a 2017 case involving the Central Bureau of Investigation and a former Finance Ministry official, where it was established that policy leaks with trading implications could attract joint action by regulators and investigative agencies.
“Though that case arose from a corruption probe, it reinforced the principle that government insiders leaking market-sensitive information face both criminal and market consequences,” Tungare added.
Focus shifts to source accountability
Emailed queries to the CERC chairman on any internal enquiry remained unanswered at press time. Attempts to reach the two officials through their official contact details also did not elicit a response.
“The Sebi order addresses the beneficiaries of the leak, but the real test lies in how the system acts against the source of the information,” said Athira T. S., associate partner at King Stubb & Kasiva. “This case could set a precedent where both market participants and government functionaries are held accountable for breaching fiduciary confidentiality in market-sensitive matters.”
