I have a piece with Aniket Singh Charan and Rishabh Jain in today's Financial Express examining IFSCA's Draft Prohibition of Market Abuse Regulations, 2026, proposing to consolidate the insider trading and market fraud frameworks that currently apply in the IFSC into a single instrument. Consolidation is welcome. But the details matter. The full piece is as below:
Consolidating two regulatory regimes into one is the easy part. The harder task is to do so without quietly expanding the reach of either. The International Financial Services Centres Authority's draft Prohibition of Market Abuse in Securities Markets Regulations, 2026 (Draft MAR), released for public comments on 6 March 2026, attempts the consolidation. It proposes to replace the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) as they apply in the IFSC, folding insider trading and market fraud into a single instrument.
Presently, in the IFSC the PIT Regulations govern the use of unpublished price sensitive information (UPSI), which is information pertaining to a listed entity that is not generally available but which, if made available, would materially affect the price of that entity's securities. Persons who, in the preceding six months, have been associated with a company in a capacity that would allow them access to UPSI are considered “connected persons”. Both connected persons and persons who actually possess UPSI are considered “insiders”.
Insiders are prohibited from communicating, procuring, providing, or allowing access to any UPSI, except in furtherance of legitimate purposes, performance of duties, or discharge of legal obligations. They are also prohibited from trading while in possession of UPSI, save in a narrow range of specified cases. Listed entities, intermediaries, and fiduciaries are required to formulate their own codes of conduct under the PIT Regulations. This framework has been largely continued in the Draft MAR, though the term “material non-public information” (MNPI) is used instead of UPSI.
The Draft MAR, however, does not prescribe minimum standards for the code of conduct, unlike the PIT Regulations, leaving such standards to be specified later by the IFSCA. This is significant as under the PIT Regulations, the code of conduct applies to Designated Persons, that is, persons so designated by the organisation on the basis of their actual or potential access to UPSI. This typically includes promoters, executive directors, and senior personnel. Designated Persons are subject to higher compliance requirements than other insiders, including obtaining pre-clearance of trades from the Compliance Officer. Under the Draft MAR, unless the same is reintroduced in the code of conduct standards specified by the IFSCA, there may be a move away from the Designated Person framework altogether.
Under the PIT Regulations, disclosures (on a continuing basis) are required from promoters, members of the promoter group, directors, designated persons, and their immediate relatives where trades exceed INR 10 lakh in a calendar quarter, with onward disclosure by the company to the stock exchange. Under the Draft MAR, the threshold is set at USD 25,000 and the obligation is extended to all insiders, making such disclosures mandatory rather than discretionary. This raises concerns, as a strict interpretation would require any person dealing in listed securities to assess whether they qualify as an insider, even without MNPI. If implemented, this should be accompanied by an obligation on listed entities to identify and notify insiders of their responsibilities.
Separately, the PIT Regulations enable an informant to voluntarily disclose information pertaining to insider trading violations to SEBI. Such an informant is protected from retaliation and victimisation, and is eligible for a reward based on the usefulness of the information. This informant mechanism no longer appears in the Draft MAR. Protection and reward of informants is a standard and frequently used mechanism across jurisdictions, and has often led to successful enforcement proceedings. The mechanism ought to be revamped, strengthened, and extended across the IFSCA’s regulatory framework rather than discarded.
The PFUTP Regulations prohibit any person from engaging in four categories of acts in connection with securities: first, dealing in a fraudulent manner; second, employing manipulative or deceptive devices in contravention of securities laws; third, employing any device, scheme, or artifice to defraud; and fourth, engaging in any act, practice, or course of business that operates or would operate as fraud or deceit upon any person. This prohibition is continued in the Draft MAR.
The PFUTP Regulations list certain practices as manipulative or fraudulent, largely covering common-sense prohibitions that are retained in the Draft MAR. However, some additions raise concern. For instance, the Draft MAR treats “cornering of securities to gain control with a view to establish artificial demand or price” as fraudulent. Given that “artificial” is undefined, this could risk misapplication to legitimate large or algorithmic trading strategies based on bona fide market views.
Similarly, the Draft MAR treats “short sell securities in the hope of driving the price down” as fraudulent. However, short selling reflects a legitimate market view and contributes to price discovery. This, along with similar provisions, risks overextending the market abuse framework into areas better addressed through risk controls like position limits. While market integrity is important, not every market impact should be deemed fraudulent given the seriousness of such a charge, it must be defined narrowly and not capture legitimate trading practices.
The Draft MAR also sets out defences to charges of market manipulation and insider trading, broadly in two categories. First, a person may show that they made reasonable inquiries and relied on credible information, which is a fair protection for bona fide conduct. However, this defence should ideally be limited to fraudulent or manipulative practices and not extend to insider trading. Second, a person may argue that their actions were part of legitimate activities such as underwriting, market making, or price stabilisation. While appropriate, these should preferably be excluded from the definition of offences itself, rather than treated as defences to be proved.
The Draft MAR is a welcome step. Consolidating insider trading and market fraud into one instrument is overdue, and much of what it proposes is sound. But market abuse regulation lives in its edges, in how widely the net is cast and how narrowly the defences are drawn. Cornering and short selling are not frauds because a regulator says so, and the Designated Person framework is not a detail to be left to later rule-making. The IFSCA should revisit these before the Draft is finalised. A consolidated regime is worth having. A consolidated regime that overreaches is not.
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