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This article is written by Mehreen Garg.


As the World Health Organisation (WHO), on 11th March 2020 announced the COVID-19 crisis to be a global pandemic, there has been a high alert worldwide in order to contain the widespread of the disease. The unprecedented disruptions caused globally due to the Coronavirus outbreak (COVID-19), not only affected our social environment but also our political and economic environment. According to Aljazeera, over 188 countries have been confirmed to have been massively affected by the outbreak. Like these affected countries, India has been far from untouched by this pandemic.

At the time of writing in June 2021, COVID-19 has had its second lethal wave wreaked havoc worldwide with over 17.8 crore confirmed cases and approximately 38.5 lakh deaths. The outbreak has unquestionably been unnerving for not just human life but also global economics. Due to this tragedy, a massive number of countries have suffered through a lockdown period where most of the social life and economic activities in the country were brought to a halt in order to prevent a community spread of the disease. India too was shut down due to this spread through the government’s Notification No. 40-3/2020-DM-I(A) as passed on 24th of March 2020. The halt of social and economic activities worldwide subsequently had a direct effect on companies in almost every economic sector. This global lockdown (or also called the Great Lockdown) has not just affected global commerce chains but has also led to a collapse in the financial markets and commodity prices worldwide.

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Businesses over the last few months have had to resort to making extremely tough financial decisions as they suffered the impact of this unforeseen calamity. The pandemic has proven difficult the profit earning capacity whereas with regards to numerous companies, even the mere survival of most businesses to be of utmost difficulty. This crisis has led to massive disruption in the daily workings and activities of enterprises, from setting up remote operations reorganizing supply chains which has led to the contractual parties failing to meet their obligations. During this period of economic instability, the likelihood of engaging in COVID-19-related financial crimes has risen dramatically. It presents a lucrative opportunity for speculators, particularly those with knowledge of the implications of the current state of affairs on publicly traded companies. Such knowledge regarding essential performance standards, such as monetary operations, security breaches, material contracts, mergers or acquisitions, etc would enable an individual who is an active participant in such a structure to recognise and predict unlawful financial advantages, allowing them to plan their trading decisions more efficiently.

Insider Trading

The Securities and Exchange Board of India (SEBI) (Prohibition of Insider Trading) Regulations, 1992 define an insider as “any individual who has access to unpublished price sensitive information on a company’s securities.” Insider trading is defined as dealing in a company’s securities by anyone who has access to price sensitive information prior to its availability to the general public. Insider trading, according to section 195 of the Companies Act 2013, is defined as the act of buying, selling, subscribing, or agreeing to subscribe in a company’s securities directly or indirectly by key management personnel or a company director who is expected to have access to unpublished price sensitive information with regard to the company’s securities.

Insider trading can be understood as an act of purchasing and selling stocks of a company by an individual with the company’s unpublished price sensitive information before it is available to the general public with the goal of generating abnormal profits and avoiding losses. Legal insider trading occurs when a business insider trades while conforming to all regulations, and the infringement of any of the regulations prescribed by SEBI is considered criminal or illegal insider trading. As a result, they must promptly declare their legitimate trades to SEBI in order to swiftly detect insider trading operations. Business insiders are permitted to trade in the shares of their own company.

However, it is mandatory for them to report these operations in order to prevent the exploitation of price sensitive information yet unavailable to the general public. To promote the confidence of the investors and in order to ensure transparency in securities trading, SEBI has enacted a number of insider disclosure requirements. The goal of mandatorily disclosing all information with regards to these transactions is to create a fair play for all those participants involved in the market. To safeguard themselves from a SEBI inquiry with regards to insider trading or any disciplinary actions, companies should evaluate their security protocols and revise the insider trading regulations they follow, ensuring that all these policy decisions clearly define the restriction of trading on unpublished price sensitive information given the increase in opportunity for the same which has been provided by the pandemic. 

Insider Trading during the Pandemic

Several governmental authorities have issued decrees restricting and granting assistance to businesses and individuals in an effort to both lessen the impact of the pandemic and ease its impacts. Combined, such prohibitions and countermeasures have greatly enhanced both the potential and the motivation for persons to trade on substantial confidential financial knowledge, raising the danger of government investigations or SEBI disciplinary actions linked to COVID-19 insider trading. Companies all across the world are grappling with the financial consequences of COVID-19, as some have been forced to abandon their business for extended periods of time or dramatically adjust their business strategies to fall in line with governmental measures aimed at limiting the virus’s transmission. In view of the existing business practices with regards to the pandemic and COVID-19, corporations have had to alter their other related policies.

Additionally, given that the securities market regulatory body has issued such aggressive, thorough guidelines, it will be fascinating to see if this sets the bar for expected market behaviour. SEBI has taken into account the interests of both investors and stakeholders and has relaxed some of the strict insider trading restrictions in the context of COVID-19, making it simpler for companies to increase capital using the market. The regulatory body, on the other hand, has ordered the corporations to keep a systematic record of all unpublished price sensitive information and the identities of those who are privy to its access. 

SEBI, in June 2020, released a circular providing details regarding the relaxation in timelines for compliance with regulatory requirements. One of the relaxations that were provided via this circular was relaxation in the processing of the Demat request form by the issuer/ participant. This also involved submission of half-yearly Internal Audit Report (IAR) by DPs for the half-year ended on 31st March 2020, the redressal of investor grievances and transmission of securities, along with the closing of a Demat account. This was done by declaring a 15-day time period after July 31, 2020 is allowed to Depository/ DPs, to clear the backlog.


Just like India, the pandemic and the virus sent a severe shock down the United States of America that not just made the country suffer a severe impact on its economy but also on the country’s life toll. In order the determine the significance and consequences that the pandemic has had on the corporation’s finances and public ordeals, the Securities and Exchange Commission (SEC) has issued an exemption order giving public businesses an extension of a 45-day period to file regular public disclosure reports, such as Forms 10-K and 10-Q, which were normally (pre-covid times) expected to be filed between March 1 and July 1. Although beneficial to many businesses, the SEC’s 45-day filing extension, along with COVID-19’s large impact on most enterprises, provides a climate conducive to conduct insider trading and other anti-fraud offences.

Individuals engage in insider trading when they acquire or sell stock depending on the substantive potentially sensitive corporate information. Business insiders may likely have access to—along with the ability to trade on—price sensitive corporate information for an extended period of time before it is made accessible to shareholders for public corporations that take full advantage of the SEC’s filing delay. Furthermore, firm insiders are likely to have confidential information not only about how COVID-19 may affect their own financial reports, but also about how the pandemic would affect other parties, such as clients, suppliers, as well as other intermediaries with whom their businesses regularly interact. COVID-19 has had such a significant impact on practically every industry that much of the confidential price sensitive information about it is likely to be relevant.

These elements combine to produce one-of-a-kind and extraordinary possibilities for insider trading. Beyond the opportunity afforded by the SEC’s latest filing extension, pandemic restrictions have resulted in more opportunities for insider trading. Remote working also gives unique chances for transmitting material nonpublic information, whether intentionally or inadvertently.


The COVID-19 pandemic has established an atmosphere where, tragically, people may have a higher desire to profit from material nonpublic information, in addition to creating unprecedented potential for insider trading. Corporations and people are feeling the economic burden as they navigate harsh government restrictions, including the mandated closure of numerous “non-essential” businesses. 

Big businesses have gone out of business, and unemployment claims have hit record highs. Although the impact of the COVID-19 pandemic on the international economy is still unknown, several companies and retirement investments are anticipated to be wiped out. Businesses must also keep track of their employees’ adherence to these regulations, ensuring that everyone is aware of and following the company’s insider trading policies. Companies might consider sending clear advisory communications to their employees to remind them of their commitment not to share or trade significant price sensitive information unavailable for the eyes of the public learned via their occupation. Due to the ease through which information can spread between many friends and family in a confinement situation, company directors, officers, and employees should all be reminded of the significant risks involved with insider trading, as well as best practises for maintaining privacy while in isolation. This involves alerting these persons that sensitive price sensitive information should only be communicated in private and that electronic devices exhibiting such data should not be accessible to non-insiders.

Corporations must carefully evaluate the implications of COVID-19 and other associated government limitations on their enterprises before making mandatory disclosures, and directors, officers, and personnel should be reminded not to trade on important information until these disclosures are publicly disclosed.

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