Insider Trading Beyond Borders - Comparative Legal Challenges And Enforcement Gaps
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Category: General Law
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INSIDER TRADING BEYOND BORDERS: COMPARATIVE
LEGAL CHALLENGES AND ENFORCEMENT GAPS
Manya Garg, B.Com. LL.B. (Hons.), Jindal Global Law School, O.P. Jindal Global University, Sonipat, India
ABSTRACT
The globalization of financial markets has made insider trading a complex issue that transcends borders, raising various questions about jurisdiction and enforcement. This article delves into how varying national laws complicate the process of holding foreign actors accountable. It begins with an overview of insider trading regulations in India, then compares the regulations in the United States, the European union, and the United Kingdom. A significant topic discussed is the challenge of jurisdictional overlaps and enforcement gaps, particularly when material non-public information is acquired in one country but used for trading in another country. Regulator face various challenges when investigating and prosecuting these activities including limited avenues for information sharing, a lack of binding international agreements and concerns related to national society.
By examining different legal frameworks and enforcement practices, the article sheds light on the extraterritorial reach of insider trading laws. Furthermore, it explodes how emerging technologies like AI and anonymous trading platforms complicate these jurisdictional issues even further. The article concludes by proposing suggestions such as standardising insider trading laws, etc. Ultimately, a unified international effort is a essential to uphold market integrity and effectively that across border inside trading.
Introduction In recent decades, globalisation has changed the financial markets significantly. As information flow more freely across the borders, market transactions now extend beyond national boundaries. However, insider trading regulations in various countries have not kept pace. Despite the rapid growth of economic connections, legal enforcement often remains scattered and focused solely on domestic issues. This created new types of financial misconduct, especially cross-border insider trading to emerge. In conceptual terms, insider trading refers to buying and selling securities based on material non-public information (MNPI). 1 It threaten the fairness and efficiency of the financial market, providing individuals with access to confidential information an unfair edge over the public, who must wait for the official release of that information.
The main concern is that insider trading weakens the principle of equal access to information, which is important for maintaining investor trust and market transparency. Historically, insider trading was not always seen as illegal. In the United states, it was not until the early 20th century that courts began to see this behaviour as a breach of fiduciary duty. A landmark case in this area was SEC v. Texas Gulf Sulphur Company, where the court decided that anyone aware of MNPI must either disclose it or avoid trading until that information is publicly available. 2 The cross-border aspect of insider trading brings additional legal challenges. It can be said that material information may come from one country while trading on that information happens in another country.
This situation creates a loophole that people or companies might exploit by taking advantage of differences in law, regulatory gaps, and limited enforcement. Consequently, cross-border insider trading often goes unnoticed or unpunished, especially when no simple country can claim jurisdiction over the entire transaction involving unpublished information for trading. Regulating this behavior is crucial for maintaining market integrity and building investor trust. In India, insider trading was not explicitly banned until the Securities Exchange Board of India (SEBI) established formal regulations in 1992. 3 Since then, SEBI has gradually built a legal framework to combat insider trading, although challenges
1 MGM Securities Trading Policy (2014)
accessed on
17 June 2025
2 SEC v Texas Gulf Sulphur Co, [1966] 446 F 2d 1301
3 Suraj Prakash, Dr. Tavleen Kaur Khurana, ‘Historical Evolution of the Securities Market and Insider Trading Regulations: A Comparative Study of India and the USA’ (2024) Vol. 14(3) EEL accessed on 17 June 2025
remain, especially regarding enforcement across borders. This article delves on the legal and regulatory issues related to cross border insider trading, highlighting the jurisdictional barriers that complicate effective enforcement. Regulatory Framework of Insider Trading in India Insider trading regulations in India have changed significantly in the sense, that they have shifted from basic disclosure requirements to a more detailed legal framework. The Securities and Exchange Board of India (SEBI) plays a key role in this system. It was set up in 1992 as the principal authority looking over the capital market. 4 Its main goal is to prevent unfair practices, and insider trading is a major concern because it affects market integrity and investor trust. SEBI’s involvement marks and important move towards the clearer framework for regulating insider trading.
The statutory basis for insider trading regulations became official with the SEBI act of 1992. Section 12A of this act gives SEBI the authority to prohibit insider trading. 5 Section 15G and 24 impose civil and criminal penalties for violation. 6 In 1992, SEBI first introduced the Prohibition of insider trading regulations. 7 However, due to limitations and enforcement problems with those regulations, they were repealed. The new SEBI (Prohibition of Insider Trading) Regulations, 2015 changed the enforcement approach significantly. Under Regulation 2(g) of the 2015 Regulations, an insider is defined as anyone who is connected person or someone who has access to unpublished price sensitive information.
8 A connected person as they find and regulation 2(d), includes individual and contractual, fiduciary or employment relationships with the company such as directors officers and professional advisors. 9 UPSI, defined in Regulation 2(n), includes non-public information that could significantly influence the price of securities once made public. 10 The regulations clearly prohibit trading while possessing UPSI unrestricted communications about UPSI to insiders to prevent misuse. One major change in 2015 regulations is the introduction of prescheduled trading plans under regulation 5 this regulation balance is the need for compliance with the 4 Securities and Exchange Board of India accessed on 17 June 2025
5 Securities and Exchange Board of India Act 1992, s.12A
6 Securities and Exchange Board of India Act 1992, s.15G and 24
7 Gunjan Modit, ‘SEBI (Prohibition of Insider Trading) Regulations, 2015: An understanding of Insider Trading Regulations in India and Major obstacles in its implementation’ (SCC online, 14 September, 2023) accessed on 17 June 2025
8 SEBI (Prohibition of Insider Trading) Regulation 2015, regulation 2(g)
9 SEBI (Prohibition of Insider Trading) Regulation 2015, regulation 2(d)
10 SEBI (Prohibition of Insider Trading) Regulation 2015, regulation 2(n)
necessity for insiders former like promoters or key management, to trade in securities. 11 Despite this comprehensive and supportive regulatory framework, insider trading in India faces major challenges. One of the challenge is proving the link between the course of the information and the trader. Courts have recognised the validity of circumstantial evidence, such as call records, email trails, and communication patterns, as illustrated in the case of VK Kaul v. SEBI. However, the high standard for proving intent still poses a challenge for effective enforcement. 12 Secondly, a major issue is the detection and prosecution of cross-border trading. This involves individuals or companies outside India trading Indian securities based on UPSI. The lack of transparency in offshore accounts and online trading platforms complicates the processes of investigation and enforcement.
Jurisdictional issues becomes more evident when foreign individuals or organisations are involved, especially without binding agreements for enforcement or strong frameworks for sharing data. Even though SEBI is a part of multilateral memorandum of understanding (MMoU) through International Organisation of Securities Commission which helps international regulators, effective enforcement relies on the willingness and efficiency of other agencies. This lack of legal and procedural unity limits SEBI’s ability to effectively track down and punish violations that cross borders. Jurisdictional challenges in cross- border Insider Trading The enforcement of insider trading laws in the context of cross-border presents significant jurisdictional challenges globally.
As cross-border transactions become common, they create gaps in international regulatory framework, exploits the technological advancements like Artificial Intelligence (AI), and raises questions on the extraterritorial application of domestic laws which further complicates the enforcement. It can be said that the individuals and organization frequently operate in places with weak or poorly insider trading laws. This is because they use jurisdiction as safe havens, which undermines global efforts to maintain market integrity. One of the primary legal challenges of cross-border insider trading is determining which jurisdictions laws are applicable when wrongful conduct or its efforts span multiple countries. For example, an insider located in country A may disclose unpublished price sensitive information to a person in country B, who subsequently uses the information to
11 SEBI (Prohibition of Insider Trading) Regulation 2015, regulation 5
12 Gunjan Modit, ‘SEBI (Prohibition of Insider Trading) Regulations, 2015: An understanding of Insider Trading Regulations in India and Major obstacles in its implementation’ (SCC online, 14 September, 2023) accessed on 17 June 2025
trade securities on a Stock Exchange in country C. This results in chaos and confusion and application of laws and regulations. Additionally, the differentiation of regulatory framework is a challenge as their definition of terms like “insider”, “unpublished price sensitive information”, and the evidence required for prosecution differ significantly and obstruct cross border cooperation. 13 This is evident from the scenario wherein the US Securities and Exchange Commission (SEC) has built a strong enforcement framework for insider trading cases, while other jurisdiction may lack the resources to investigate and prosecute similar crimes effectively. 14 Such regulatory inconsistencies pose a significant barrier to the development of an uniform legal framework for addressing insider trading across jurisdiction.
One more difficulty might arise from the application of Artificial Intelligence. The integration of AI into financial markets has made it much tougher to enforce cross-border insider trading laws. High frequency and algorithmic trading system can process large data sets and execute trades on their own. This makes it hard to trace where trades come from and complicates how and to whom to determine the responsibility. When AI driven strategies lack clear human involvement, it becomes difficult to tell the difference between legal speculations and illegal trading based on unpublished price sensitive information. This situation weakens the usual legal test for intent and knowledge. These issues get worse when criminal networks use AI tools to quickly and secretly take advantage of gaps in regulations across different areas.
A new technologies like machine learning and blockchain analytics could help spot anomalies and improve transaction transparency, their effectiveness is limited by inconsistent legal definitions of insider trading, fragmented legal frameworks, and a lack of cooperation across borders. As far as India is concerned, the use of AI-powered trading platforms has far surpassed the current regulatory framework. These technologies are often used to carry out illegal transactions through anonymous accounts and decentralised exchanges. This complicates SEBI’s efforts to trace the course of insider information or the ultimate recipient of the transaction. To address these issues, there is a need for coordinated global regulatory framework along with investments and improved technology and data sharing practices.
When inside trading takes place across borders, SEBI encounters significant jurisdictional challenges. For instance, trade made through Foreign Institutional Investors (FIIs), 13 Olubusayo Mesioye, ‘The Nexus between Insider Trading and Organised Crime: Challenges in Enforcing Ethical Market Practices’ (2025) Vol. 6(1) Pp. 1824 IJRPR accessed on 17 June 2025
14 US Securities and Exchange Commissio, SEC Enforcement actions Insider Trading cases (2019)
participatory notes (P-notes), Offshore derivative instruments (ODIs) may involve parties outside the reach of Indian regulators. 15 This problem is made worse by SEBI’s limited extraterritorial authority under Indian law. While courts have ruled that SEBI has regulatory power over actions affecting Indian security markets, effectively and enforcing this power depends on working with foreign regulators and courts, which is not always guaranteed. The practical impact of these jurisdictional constraints is shown by the Panama Papers investigation. This investigation revealed the misuse of offshore entities for money laundering, tax evasion, and illegal financial flows. 16 Despite the breath of these revelations, enforcement efforts faced jurisdictional barriers.
These included the unwillingness complicated jurisdiction to work with the foreign investigative agencies, limits in mutual legal assistance frameworks, and the complex transnational evidence chains. These barriers led to a few successful prosecution, allowing many individuals to avoid accountability. In India, the case of SEBI v. Pan Asia Advisors Ltd. & Another, highlighted the challenges of regulating trades routed through offshore derivative instrument. 17 Although SEBI tried to prove that trades by foreign entities affected Indian markets and fell within regulatory authority, enforcement needed significant cross border corporation. This underlines the operational challenges Indian authorities encounter went tracking insider trading through complex offshore structures. To effectively tackle cross border insider trading, stronger international legal tools are necessary.
Comparative analysis of India, US, UK and European Union Insider trading laws differ significantly across jurisdiction, particularly in their definitions, enforcement mechanisms, and penalties. India, the United States (US), and the European Union (EU) and to an extension the United Kingdon to prohibit trading based on unpublished information. At the conceptual level,. India’s SEBI (Prohibition of Insider Trading) Regulations, 2015 defines an “insider” broadly to include connected persons and any individual in possession of unpublished price-sensitive information (UPSI), extending even to immediate 15 Aditya Kumar & Samriddhi Singh, P-Notes and SEBI Regulations: Addressing Regulatory Arbitrage Whilst managing foreign investment’
(SCC
Online, October, 2024) accessed 18 June 2025 16 Olubusayo Mesioye, ‘The Nexus between Insider Trading and Organised Crime: Challenges in Enforcing Ethical Market Practices’ (2025) Vol. 6(1) Pp.
IJRPR
https://ijrpr.com/uploads/V6ISSUE1/IJRPR37769.pdf> accessed on 18 June 2025
17 SEBI v. Pan Asia Advisors Ltd. & Another [2015] 14 SCC 71
relatives and associated third parties. 18 This board formulation shows a desire to include many types of relationship that might create gaps in information. By contrast, US insider trading law is rooted in common law fiduciary theories. This suggests that insider trading laws are primarily grounded in the principle that certain individuals such as corporate insiders, hold a fiduciary duty of trust and confidence towards the shareholders or the company. Trading based on material non-public information is viewed as a violation of this duty, forming a central basis for establishing liability in insider trading case.
This has been supported by the classical theory which addresses situations wherein the insiders breach fiduciary duties to shareholders, while the “misappropriation theory” captures outsiders who trade based on information misappropriated from source to whom they owe a duty of trust as illustrated in the case of Chiarella v. United States and United States v. O’Hagan19. The European union, through the Market Abuse Regulation (MAR), adopts a parity-of- information approach similar to India’s, where the mere possession of inside information imposes a duty to abstain or disclose. 20 Enforcement philosophies differ widely. The US is most aggressive. The Securities and Exchange Commission (SEC) can impose civil penalties, seek injunctions, and work with Department of Justice for criminal cases. The SEC has also has a strong investigatory tools, including wiretaps and data analysis.
This was evident in the case of SEC v. Rajat Gupta, where wiretap evidence played a crucial role. 21 The UK follows the Financial Services and Markets Act 2000, which makes insider trading and market abuse illegal. It has separate rules for civil and criminal enforcement. The Financial Conduct Authority (FCA), like the SEC, uses advanced surveillance and has achieved major convictions with prison sentences. 22 India’s SEBI, while given authority under the SEBI Act of 1992 and the 2015 regulations, still struggles with limited resource and technology. This affects how quickly and effectively it can enforce regulations. SEBI can impose both civil and criminal penalties under a unified regulatory framework, but successful prosecutions are uncommon. Cases such as Hindustan Lever Ltd v.
SEBI, helped shaped the law by introducing the concept of UPSI and confirming 18 Trisha Lesley, ‘Insider Trading and its regulatory Framework in India’ (2022) 2(6) IJIRL accessed 18 June 2025
19 Chiarella v United States 445 US 222 (1980); United States v O’Hagan 521 US 642 (1997)
20 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) OJ L 173/1
21 SEC v Rajat Gupta (S.D.N.Y. 2012) No 11 Civ 7566.
Financial Services and Markets Act
(UK),
‘Market Abuse and Insider Dealing’ https://www.fca.org.uk accessed 18 June 2025.
SEBI’s authority to discipline. 23 In the case of Reliance Industries Ltd. v. SEBI, although SEBI initially found the company liable, the Appellate Tribunal reversed the decision due to a lack of proof regarding the actual transmission of UPSI. 24 this showcases the challenges of providing evidence in insider trading cases. Historically, US was the first country to regulate securities after the 1929 market crash. The Securities Act of 1933 and the Securities Exchange Act of 1934 laid down the groundwork for enforcing insider trading law. 25 The landmark case SEC v. Texas Guff Sulphur Company in 1968 established the “disclose or abstain” principle, emphasising the trading with material non-public information gives an unfair advantage. 26 In comparison, India criminalised insider trading in 1992 through SEBI authority with detailed enforcement provisions coming after the 2015 amendments.
27 In the European union, while early directives set the stage, the adoption of mar in 2016 created a more unified and strong system that operates directly across member states. 28 From the procedural perspective, the U. S. and the U. K. allow for separate criminal and civil enforcement. India, however, combines both within the SEBI’s regulatory structure. The penalties differ as well. In India, penalties can include fine, disgorgement, and imprisonment for up to 10 years, or a fine of up to Rs. 25 crores, or three times the profit made, whichever is greater. 29 In the US, the law permits triple damages, hefty civil fines, and long present sentences. In the UK, jail terms can extend to 7 years under criminal law, and the administrative penalties may apply under civil market abuse rules. 30 Cross border enforcement highlights another difference.
The US takes a strong extraterritorial approach, claiming jurisdiction whenever a transaction involves American markets or investors. 31 The European Union and United Kingdom limit their jurisdiction more narrowly to domestic actions or impact on their markets. In contrast, India has no direct extraterritorial reach and relies mainly on Mutual Legal Assistance Treaties (MLATs) and informal corporation through IOSCO’s MMoU. 32 It can be said that while India has made strides towards global best practices in its regulatory drafting
23 Hindustan Lever Ltd v SEBI [1998] SEBI Order No. IES/3/98.
24 Reliance Industries Ltd v SEBI [2017] SCC OnLine SEBI 247.
25 Securities Exchange Act of 1934, 15 USC § 78a.
26 SEC v Texas Gulf Sulphur Co 401 F.2d 833 (2d Cir. 1968).
27 Aayush Gupta, ‘Insider Trading in India: Comparative Analysis’ (2023) 3(2) IJLR https://ijlr.iledu.in accessed
18 June 2025.
28 Directive 2003/6/EC (Market Abuse Directive); Regulation (EU) No 596/2014.
29 SEBI Act 1992, s 15G.
30 Financial Services Act 2012, s. 89-91
31 SEC v Euro Security Fund (S.D.N.Y. 1999) Fed Sec L Rep (CCH) para 90,433.
32 SEBI, ‘Enforcement Cooperation’ accessed 19 June 2025.
by adopting a broad definition of insiders and aligning with information-parity models, it still lags behind the US, UK and EU in enforcement capabilities, prosecution outcomes, and technology use. The US model emphasizes fiduciary duty and deterrence, while the EU’s structured framework offers valuable lessons. As far as India is concerned, enhancing international corporation, investing in surveillance technology, and fixing procedural inefficiencies are essential for building a stronger system against insider trading. Recommendations Given the growing complexity and global reach of insider trading, a coordinated international response is crucial to address the regulatory gaps. A key priority of the international level is the standardisation of critical terms like “insider”, “UPSI”, and “materiality”.
Differences in these definitions among countries create enforcement gaps and weaken the regulatory consistency. Uniform standards would help choose close these gaps and improve cooperation between the countries. Another area requiring attention is international regulatory collaboration. Although frameworks like IOSCO Multilateral Memorandum of Understanding (MMoU) provide a basis for corporation, their effectiveness is hindered by non-binding provisions and slow information exchange. Stronger bilateral and multilateral treaties are needed with explicit vision for legal assistance, access to financial data, and extradition in financial crime cases, including insider trading. Improving transparency in cross- border investments is equally relevant.
Regulators must enforce stricter due diligence norms to aid in the early detection of suspicious transactions and strengthens enforcement efforts across jurisdictions. In India, the Securities and Exchange Board of India (SEBI) should expand its technological and investigative capacity to address the challenges of cross-border insider trading. This includes investing in advanced surveillance tools, enhancing the skill set if enforcement teams, and establishing clear procedures for international collaboration. India’s current legal framework has limited extraterritorial reach, so it is important for SEBI to strengthen its network of bilateral agreements and consider changes to the law that clearly established jurisdiction over actions affecting Indian securities market.
These reforms would significantly improve the legal and institutional framework for dealing with cross border insider trading, boost investors’ confidence, and maintain the fairness and integrity of financial markets.
Conclusion The growing globalization of capital markets has made insider trading a more complex issue that crosses national borders. This situation highlights the weakness of domestic regulatory systems. As discussed in this article, cross-border insider trading thrives in gaps created by different definitions, inconsistent enforcement, and lack of stronger international corporation. While countries like US and members of European Union have set up better regulatory enforcement system, nations like India still face major challenges. This is especially clear when it comes to enforcing domestic laws beyond their borders and getting timely information from overseas regulators. New technologies, such as algorithm trading and anonymous online platforms, make detection prosecution even more difficult.
These changes let wrongdoers take advantage of cross-border setups and differences and regulations. In India, even with improvement to SEBI’s framework through 2015 Regulations, enforcement is limited by lack of investigative resources, vague legal standards and an overdependence on foreign cooperation. To tackle cross-border insider trading, a strong strategy is needed. This plan should include the global standards for definition of terms, improving treaty-based corporations, using AI and blockchain for oversight, and filling regulatory gaps. For India, it is important to provide SEBI with clearer rules, better technology, and stronger international corporation and partnership. Ultimately, coordinated international efforts along with local reforms are essential to maintain the market integrity, restore investors’ confidence, and protect credibility of global financial system.