Regulations and compliance
In this chapter: SEBI Act, Securities Contracts Regulation Act · Insider trading and PFUTP regulations
The legal foundation: SEBI Act 1992 (constitutes SEBI, gives it powers), SCRA 1956 (regulates contracts in securities), Depositories Act 1996 (governs NSDL/CDSL). Two key SEBI regulations bind operations: PIT (Prohibition of Insider Trading) regulates insider conduct; PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) catches market manipulation, front-running, and circular trading.
PIT applies to "insiders" (anyone with access to UPSI — unpublished price-sensitive information) and prohibits trading in the relevant security on UPSI. Brokers and operations staff who handle institutional orders see UPSI implicitly — front-running based on this is a serious offence (multi-crore penalties, debarment). PFUTP catches "manipulation" — circular trading, mis-statements in financials, pump-and-dump schemes, and fraudulent allotment in IPOs. SEBI investigates via market-surveillance algorithms; penalties run from monetary (1×-3× of unlawful gain plus penalty) to debarment (3-10 years) to criminal prosecution.
A 2024-25 regulatory tightening: information-barrier obligations on brokers handling research and trading concurrently. Operations staff must implement physical and electronic separations between research and trading desks; failure leads to SEBI penalties. Another angle: dealer registration. SEBI now requires dealers (i.e., individuals executing trades on the broker's behalf) to register and clear NISM 7 — operations staff are primary candidates for this exam.