Regulation 5 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 carves out one of the most counter-intuitive permissions in Indian securities law: it lets a person who is perpetually in possession of unpublished price-sensitive information (UPSI) nevertheless trade in the company's securities without breaching the trading bar in Regulation 4. The device is the trading plan — a pre-committed, publicly disclosed schedule of trades formulated at a time when the insider could not be exploiting any specific informational advantage. Borrowed from Rule 10b5-1 of the United States and recommended by the Justice N.K. Sodhi High Level Committee in 2013, the trading plan is best understood as a structured affirmative defence rather than a loophole. This chapter dissects the architecture of Regulation 5, the sweeping June 2024 amendment that rewrote almost every numerical condition, and the case law that frames why such a safe harbour was thought necessary at all.
The problem Regulation 5 solves
The core prohibition under Regulation 4(1) bars an insider from trading when “in possession of” UPSI. For most insiders this is a discrete, occasional constraint. But for a managing director, a promoter, or a chief financial officer, the possession of UPSI is effectively permanent — such persons are almost never wholly free of material undisclosed information about their own company. A literal application of Regulation 4 would therefore freeze these individuals out of the market indefinitely, an outcome both commercially unreasonable and impossible to police.
The Justice N.K. Sodhi High Level Committee, whose December 2013 report formed the backbone of the 2015 Regulations, addressed this by importing the American concept of a pre-arranged trading plan modelled on Rule 10b5-1(c) of the U.S. Securities Exchange Act, 1934. The logic is temporal: if an insider commits in advance — at a time when no specific trade is being executed and no immediate informational edge is being exploited — to a fixed schedule of future trades, then the actual execution of those trades cannot be said to be motivated by the UPSI in hand. The informational advantage is, in effect, neutralised by the gap between decision and execution. This is why Regulation 5 sits as a carefully fenced exception and not as a general dispensation; the Committee was explicit that SEBI must build in “necessary safeguards” so that only bona fide transactions qualify.
For a fuller account of how the 2015 regime departed from its predecessor, see the chapter on evolution from the 1992 Regulations.
Who may formulate a trading plan and when
Regulation 5(1) provides that an insider may formulate a trading plan in respect of securities of the company and present it to the compliance officer for approval and public disclosure, pursuant to which trades may be carried out on his behalf in accordance with the plan. Two features of the drafting are exam-critical.
First, the power is permissive, not mandatory. No insider is obliged to adopt a trading plan; it is an option for those who wish to trade despite perpetual possession of UPSI. An insider who is not in possession of UPSI does not need a plan at all — an ordinary on-market trade suffices.
Second, the plan must be formulated free of any tainted purpose. The entire edifice presumes that at the moment of formulation the insider is not designing the schedule to exploit specific UPSI then in hand. The Sodhi Committee captured this as the requirement that the plan must reflect bona fide intent. The compliance officer—and behind him the disclosure to the stock exchanges—is the gatekeeper who tests that presumption. The detailed obligations of the compliance officer are dealt with separately under the code of conduct and fair disclosure framework that listed companies must maintain.
The original conditions under Regulation 5(2) (2015–2024)
From 2015 until the September 2024 amendment took effect, Regulation 5(2) hard-wired five conditions, the rigidity of which ultimately rendered the device almost unused in practice. A trading plan was required to:
(i) Cool-off period: not entail commencement of trading earlier than six months from the public disclosure of the plan. This long gap was meant to ensure that any UPSI possessed at formulation would have entered the public domain before any trade executed.
(ii) Results black-out: not entail trading for the period between the twentieth trading day prior to the last day of any financial period for which results are required to be announced and the second trading day after the disclosure of such financial results.
(iii) Minimum coverage: cover a period of not less than twelve months.
(iv) No overlap: not entail overlap of any period for which another trading plan was already in existence.
(v) Trade specificity: set out either the value of trades to be effected or the number of securities to be traded, along with the nature of the trade and the intervals at, or dates on, which such trades were to be effected.
The proviso to clause (v) made clear that the plan could not deal in securities for market abuse. The combined effect — a six-month wait, a twelve-month lock-in, a results black-out, and no price protection — meant insiders bore full market risk over a long, inflexible horizon. Unsurprisingly, take-up was negligible, a point repeatedly made in regulatory commentary and which drove the 2024 reform.
Irrevocability: Regulation 5(3)
Regulation 5(3) is the spine of the entire scheme. It provides that the trading plan, once approved, shall be irrevocable and the insider shall mandatorily have to implement it, without being entitled to either deviate from it or to execute any trade in the securities outside the scope of the plan.
The irrevocability rule is what gives the trading plan its defensive force. If an insider could cancel or amend the plan after seeing how UPSI developed, the temporal neutralisation of advantage would collapse and the device would become a one-way option exploited only when favourable. The mandatory-implementation limb is equally important: the insider cannot cherry-pick which scheduled trades to honour.
The 2024 amendment softened the edges of strict irrevocability by recognising narrow, objective carve-outs — non-implementation is permitted where execution becomes impossible for reasons such as a permanent disability, lack of legal capacity, a statutory or regulatory prohibition, or other genuinely involuntary circumstances. Crucially, even in such cases the insider must disclose the reason for non-implementation to the compliance officer, who in turn notifies the stock exchanges. Voluntary abandonment because the market moved against the insider remains impermissible.
Approval and public disclosure: Regulations 5(4) and 5(5)
Regulation 5(4) requires the compliance officer to review the trading plan and to approve it forthwith, taking into account whether it complies with the conditions in Regulation 5(2). The 2024 amendment tightened this into a concrete timeline: the compliance officer must approve or reject the plan within two trading days of receipt, and an approved plan must be notified to the stock exchanges on the same day it is approved.
Regulation 5(5) mandates public disclosure: the approved trading plan shall be disclosed on the platform of the stock exchange where the securities are listed. Public disclosure is not a mere formality — it is integral to the safe harbour. By placing the schedule of intended trades in the public domain in advance, the regime allows the market to discount the future trades and removes any suggestion that the insider is exploiting an informational asymmetry when the trades eventually execute. The disclosure obligations here should be read alongside the separate regime of initial and continual disclosures under Chapter III of the Regulations, which serve a distinct surveillance purpose.
The 2024 overhaul: Trading Plan 2.0
By the SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024, notified on 25 June 2024 and brought into force on 23 September 2024 (ninety days after publication), SEBI comprehensively liberalised Regulation 5 in response to its near-total disuse. The headline changes were:
Cool-off slashed: the gap between public disclosure of the plan and commencement of trading was reduced from six months to one hundred and twenty calendar days.
Results black-out removed: the prohibition on trading around the financial-results window (the twentieth-trading-day-to-second-trading-day band) was deleted altogether, on the rationale that the cool-off and pre-commitment already address the abuse the black-out targeted.
Minimum coverage removed: the mandatory twelve-month minimum duration was dropped; the insider now specifies the period for execution, subject to a maximum window per trade.
Price limits introduced: for the first time the insider may set price limits — an upper limit for a buy and a lower limit for a sell — within a band of plus or minus twenty per cent of the closing price on the day before submission of the plan. If, on the execution date, the price moves outside the chosen limit, the trade is not executed, protecting the insider from being forced to transact at a ruinous price.
Execution window capped: each tranche of trades must be executed within a defined period, commonly understood as a maximum of five consecutive trading days, after which any unexecuted portion lapses.
The net effect was to transform a theoretically attractive but practically dead provision into a workable compliance tool, while preserving the irrevocability and advance-disclosure architecture that gives the plan its legitimacy.
The trading plan as an affirmative defence
It is conceptually vital to grasp that Regulation 5 does not require proof that the insider was innocent of any wrongdoing; rather, full compliance with the plan operates as an affirmative defence to a charge under Regulation 4. The Sodhi Committee expressly described the device as such, consciously tracking the American Rule 10b5-1(c), which provides an affirmative defence to liability under Rule 10b-5 where the trade was made pursuant to a pre-existing written plan adopted in good faith when the trader was not aware of material non-public information.
The doctrinal consequence is that the burden architecture shifts. Once the prosecution establishes possession of UPSI plus a trade, the insider may discharge liability by demonstrating that the trade flowed from a duly approved, publicly disclosed and irrevocable trading plan. This dovetails with the broader Indian jurisprudence on the role of intent in insider trading, to which we turn next.
Legitimate purpose and the Rakesh Agrawal principle
The intellectual foundation for treating motive and purpose as relevant — the very premise on which an affirmative-defence device like the trading plan rests — was laid in Rakesh Agrawal v. SEBI (Securities Appellate Tribunal, 2003–2004). Rakesh Agrawal, the managing director of ABS Industries, had arranged for the acquisition of ABS shares ahead of a merger announcement with Bayer A.G. SEBI charged him with insider trading. The SAT, however, accepted that he had acted to bring about the acquisition in the interest of the company and its shareholders — a legitimate corporate purpose — rather than to make a personal unlawful gain, and substantially diluted the penalty.
The enduring takeaway from Rakesh Agrawal is that not every trade by a person in possession of UPSI is pernicious; where the transaction serves a bona fide purpose and is not aimed at exploiting the informational advantage for private gain, the equities differ. The trading plan codifies this insight by creating a structured route through which bona fide, non-exploitative trading can occur with certainty, rather than leaving insiders to argue legitimate purpose case-by-case after the fact.
Motive to gain: SEBI v. Abhijit Rajan
The Supreme Court's decision in SEBI v. Abhijit Rajan, (2022) — decided on 19 September 2022 under the predecessor 1992 Regulations — sharpened the role of motive. Abhijit Rajan, Chairman and Managing Director of Gammon Infrastructure Projects Ltd, had sold GIPL shares while in possession of UPSI concerning the termination of two project agreements. SAT had set aside SEBI's disgorgement order, and the Supreme Court dismissed SEBI's appeal.
The Court reasoned that the relevant UPSI — the termination of the contracts — was in fact good news for GIPL's balance sheet, so that an insider seeking unlawful gain would have bought, not sold. Rajan had sold under financial compulsion to rescue his flagship company. The Court held that while the actual quantum of gain or loss is immaterial, the motive of making a gain is an essential element, and the direction of the trade and the reason for it are all relevant. The actual or potential profit motive, in other words, cannot be wholly divorced from the inquiry.
For trading-plan purposes, Abhijit Rajan reinforces the conceptual basis of Regulation 5: because the plan is committed in advance and executed mechanically, the insider cannot be said to be acting on a motive to exploit specific UPSI at the moment of trading. The plan thus pre-empts the very motive inquiry the Supreme Court flagged. (Students should note the academic criticism that grafting a profit-motive requirement onto a possession-based offence risks blurring “possession” and “use” standards — a live debate, but one that does not unsettle the trading-plan logic.)
Why advance commitment matters: Hindustan Lever v. SEBI
The risk that a trading plan is designed to neutralise is vividly illustrated by Hindustan Lever Ltd v. SEBI, 1998 (18) SCL 311 (AA). HLL purchased eight lakh shares of Brooke Bond Lipton India Ltd (BBLIL) from the Unit Trust of India on 25 March 1996, roughly a fortnight before the public announcement of the HLL–BBLIL merger. Because HLL and BBLIL were under common Unilever control, SEBI held that HLL was an insider trading on UPSI about the impending merger and directed compensation to UTI. On appeal, the Appellate Authority took a more nuanced view of HLL's knowledge and intent, but the case crystallised the central anxiety of insider-trading law: a well-informed corporate insider transacting just before a price-moving disclosure.
A trading plan answers precisely this anxiety. Had a comparable transaction been executed under a pre-disclosed, irrevocable plan formulated months earlier, the temporal separation and public notice would have removed the inference that the trade was timed to capture the merger premium. HLL therefore reads naturally as the negative image of Regulation 5 — the unstructured, opportunistically timed trade that the structured plan is designed to render unnecessary and unattractive.
Interaction with Regulations 3 and 4
Regulation 5 cannot be read in isolation. It is a defence carved out of Regulation 4's trading prohibition, and it must be reconciled with Regulation 3's prohibition on communication or procurement of UPSI.
Three points of interaction are examinable. First, the trading-plan defence protects only the act of trading — it does not licence any communication of UPSI; an insider who leaks UPSI while operating a plan remains fully exposed under Regulation 3. Second, the plan does not displace the definitional questions of who is an insider, connected person and what constitutes UPSI; those gateway tests must still be satisfied before Regulation 5 is even engaged. Third, the trades executed under a plan still attract the ordinary disclosure obligations applicable to designated persons and promoters, so the plan-based public disclosure under Regulation 5(5) is additional to, not a substitute for, those continual disclosures.
Comparison with U.S. Rule 10b5-1
Because Regulation 5 was consciously modelled on Rule 10b5-1(c), the comparison is instructive and a frequent essay theme. The American rule, adopted by the U.S. Securities and Exchange Commission in 2000, provides an affirmative defence where a person, while unaware of material non-public information, entered into a binding contract, instruction or written plan specifying the amount, price and date of trades (or a formula for determining them), and the trade was executed in accordance with that plan.
India's Regulation 5 adopts the same core architecture — advance commitment, specification of quantum and timing, and good-faith formulation — but historically imposed far more prescriptive numerical conditions (the six-month cool-off, twelve-month coverage, and results black-out) than the more flexible U.S. model. Interestingly, the U.S. itself tightened Rule 10b5-1 in 2022–2023 by introducing mandatory cooling-off periods (generally ninety to one hundred and twenty days for officers and directors) and good-faith certifications — converging towards the kind of cool-off India had always required. India's 2024 reform, by contrast, moved in the opposite direction, relaxing its conditions toward a one-hundred-and-twenty-day cool-off and adding price-limit flexibility. The two regimes have thus partially met in the middle.
Practical mechanics and common pitfalls
For the practitioner and the examinee alike, a few operational points recur. The plan must originate with the insider and be routed through the compliance officer; it cannot be imposed by the company. Once approved and disclosed, the insider loses all discretion — he can neither accelerate, defer, enlarge nor cancel the scheduled trades except within the narrow involuntary-impossibility carve-outs. Trades executed outside the plan during its currency are themselves a breach, since Regulation 5(3) prohibits trading “outside the scope of the plan”.
A frequent error is to treat the trading plan as a blanket immunity. It is not: it is a defence available only for trades genuinely executed in conformity with a validly formulated, approved and disclosed plan. A plan formulated when the insider was demonstrably designing it around specific imminent UPSI would fail the bona fide requirement and forfeit the protection. Equally, the public-disclosure requirement under Regulation 5(5) is constitutive of the defence — a secret “plan” enjoys no safe harbour. For the foundational vocabulary underpinning all of this, revisit the SEBI PIT notes hub and the chapter on key definitions.
Exam pointers and quick recap
For judiciary and CLAT-PG candidates, marshal the following anchors. Regulation 5 permits an insider perpetually in possession of UPSI to trade under a pre-committed plan — an affirmative defence to Regulation 4, modelled on U.S. Rule 10b5-1 and recommended by the Justice N.K. Sodhi Committee (December 2013). The original 5(2) conditions were a six-month cool-off, a results black-out (twentieth trading day before period-end to second trading day after results), a twelve-month minimum coverage, no overlap, and full trade specificity. Regulation 5(3) makes the plan irrevocable and mandatory; 5(4) and 5(5) require compliance-officer approval and public disclosure on the stock exchange.
The June 2024 Second Amendment (effective 23 September 2024) cut the cool-off to one hundred and twenty calendar days, deleted the results black-out and the twelve-month minimum, and introduced optional price limits within plus or minus twenty per cent of the prior day's closing price, with a two-trading-day approval timeline. On principle, link the device to Rakesh Agrawal v. SEBI (legitimate corporate purpose), SEBI v. Abhijit Rajan (2022) (motive to gain is essential; direction of trade matters), and Hindustan Lever Ltd v. SEBI (the opportunistically timed pre-announcement trade the plan is meant to displace).
Frequently asked questions
What is a trading plan under Regulation 5 of the SEBI PIT Regulations, 2015?
It is a pre-committed, publicly disclosed schedule of trades that an insider formulates in advance and presents to the compliance officer. Once approved and disclosed, it allows the insider to trade even while perpetually in possession of UPSI, operating as an affirmative defence to the trading prohibition in Regulation 4. It was modelled on U.S. Rule 10b5-1 and recommended by the Justice N.K. Sodhi Committee.
How long is the cool-off period before trading can begin under a trading plan?
Originally, Regulation 5(2)(i) required that trading not commence earlier than six months from public disclosure of the plan. The SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024, effective 23 September 2024, reduced this to one hundred and twenty calendar days.
Can an insider cancel or change a trading plan once it is approved?
No. Regulation 5(3) makes the plan irrevocable and mandates its implementation; the insider may neither deviate from it nor trade outside its scope. The 2024 amendment recognises only narrow involuntary carve-outs (such as permanent disability, loss of legal capacity, or a regulatory prohibition), and even then the reason for non-implementation must be disclosed to the compliance officer and the stock exchanges.
What were the major changes made by the 2024 amendment to Regulation 5?
The cool-off period was cut from six months to 120 calendar days; the financial-results black-out (twentieth trading day before period-end to second trading day after results) was deleted; the twelve-month minimum coverage requirement was removed; optional price limits within plus or minus 20% of the prior day's closing price were introduced; and a two-trading-day timeline for compliance-officer approval was prescribed.
How does SEBI v. Abhijit Rajan relate to trading plans?
In SEBI v. Abhijit Rajan (2022), the Supreme Court held that the motive to make a gain is an essential element of insider trading and that the direction of the trade is relevant. A trading plan pre-empts this motive inquiry: because trades are committed in advance and executed mechanically, the insider cannot be exploiting specific UPSI at the moment of trading.
Is public disclosure of the trading plan mandatory, and why?
Yes. Regulation 5(5) requires the approved plan to be disclosed on the stock exchange platform. Disclosure is constitutive of the defence: by placing the schedule in the public domain in advance, the market can discount the future trades, eliminating any suggestion that the insider is exploiting an informational asymmetry. A secret plan enjoys no safe harbour.