We have seen in our earlier topic how corporate announcements impact stock prices. Understanding these corporate announcements and taking the right call can help investors take strategic portfolio decisions. But what about the management personnel in these corporates? Won’t they have an unfair advantage knowing strategic company decisions or events before they are made public? This is where SEBI come into the picture with its trading window closure regulations. Heard about this term? Check out this blog to know all about the trading window closure and its impact on stock prices.
Trading Window Closure is a term used in the stock market, especially for people who work in a company that is listed on the stock exchange. It means that there is a temporary time period when the company’s insiders, also known a ‘Designated Persons’, are not allowed to buy or sell the company’s shares. These designated persons include employees, directors, or people who have access to important internal information that can give them an unfair advantage over an average investor in the market.
The trading window closure rule was made to prevent insider trading, which is when someone uses confidential information to make unfair profits from the stock market. These rules are part of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’). Under these regulations, the trading window is usually closed before the company announces any important information that can affect the stock prices, like financial results, big deals, or changes in leadership. The closure is typically for a period of 48 hours from the time of the corporate announcement, like quarterly results. It starts a few days before such announcements and reopens only after the information has been officially shared with the public. This ensures that everyone in the market has a fair and equal chance to make decisions based on the same information.
Trading window closure is a period during which certain people inside a company are not allowed to buy or sell the company’s shares. This rule is meant to prevent insider trading, which happens when someone uses secret or unpublished price sensitive information (UPSI) to make money unfairly in the stock market.
The core SEBI rules and regulations relating to this provision are,
This rule is mainly for two types of people:
Designated Persons (DPs) - These are employees, directors, or insiders in a company who regularly have access to confidential business information, like how the company is performing financially, deals in the pipeline, or other sensitive matters. Since they know things that the general public does not, they are not allowed to trade (buy or sell) the company’s shares during certain times.
Immediate Relatives - This includes the DP’s spouse, children, parents, and siblings, if they depend on them financially or if the DP makes investment decisions for them. Even if they are not company employees, they are covered under this rule because they could benefit from DP’s insider knowledge.
The trading window closure is applicable in the following cases.
Regular Closures - This window usually closes at the end of every quarter (i.e., March 31, June 30, Sept 30, Dec 31) and stays closed until 48 hours after the financial results are shared publicly with stock exchanges. This is to prevent anyone from using early access to results to make unfair profits.
Special Closures (for UPSI) - Apart from quarterly results, the trading window will also be closed for 48 hours in case of any important news or event, after that information is officially made public. These events or news can be a big new contract, a leadership change, an audit report, or a government/regulatory action where the designated persons have an upper hand due to UPSI.
During the trading window closure, the following restrictions are applicable
DP cannot buy or sell the company’s shares.
This includes on-market transactions (via stock exchanges), off-market deals, or even creating or cancelling a pledge on the shares (like giving shares as loan security or taking them back).
All of this is tracked using the PAN (Permanent Account Number), which is linked to the demat account where the shares are stored.
The freeze is not manual, and it is automatically done at the depository level (NSDL or CDSL, where all demat accounts are maintained). The company must send the PAN numbers and demat account details of all Designated Persons and their relatives two trading days before the window closes. The depositories then freeze the PAN-linked accounts for trading in the company’s shares. A notice is also sent to stock exchanges one day before the freeze begins, so everything is transparent.
SEBI permits an exemption to the trading window closure rule if there is a genuine need (like a family emergency requiring the sale of shares). The company can apply under Regulation 9 of Schedule B of the SEBI Insider Trading Rules. The application is reviewed, and a decision is made within two trading days. If the application is approved, the PAN freeze is lifted, and trading is allowed, but only for the specific case and usually with strict conditions.
A recent SEBI Circular has brought a few changes to the regulation on the trading window closure. Prior to this circular, the automatic PAN-based freeze on trading in company shares during the trading window closure only applied to Designated Persons (DPs) such as senior employees, directors, or others with access to inside information. However, starting from this new circular, ‘Immediate Relatives’ of these DPs are also automatically covered.
The key details of this circular include,
The demat account of the Immediate Relatives of the Designated Person (spouse, parent, sibling, or child (financially dependent or guided by DP for investing)will also be frozen during the restricted period.
Thus, they also cannot buy or sell the company’s shares during the trading window closure, along with the DP.
This change brings more responsibility to listed companies. SEBI require the company to,
Collect and submit the PAN numbers and demat account details of all Immediate Relatives of Designated Persons, in addition to the DPs themselves.
Submit this information to the designated depository (NSDL or CDSL) before the trading window closes.
If there is any change (such as a new relative being added or a change in DP status), the company must update the records within 2 trading days.
Companies must stay vigilant and keep their insider trading records current and accurate. This circular intends to stop any misuse of inside information by family members. This circular will be implemented in two phases.
Phase-1 (Top 500 Listed Companies) - Effective July 1, 2025
This new rule comes into force from July 1, 2025, for the top 500 companies listed on stock exchanges (based on market capitalisation).
These are the biggest companies like Infosys, Reliance, HDFC, etc. and are expected to be ready first because they have better systems and more resources for compliance.
Phase-2 (All Other Companies and New Listings) - Effective October 1, 2025
This rule will start from October 1, 2025 for all remaining listed companies, including mid-caps, small-caps and newly listed companies.
This gives smaller companies more time to prepare and collect the necessary PAN/demat information of relatives.
The SEBI regulations on the trading window closure prevent any unfair advantage to the DP. However, earlier, if a DP was restricted from trading, their family members could still trade on their behalf, knowingly or unknowingly, using inside information. This defeats the purpose of the trading window closure provision and enables the Designated Persons to benefit from the UPSI (unpublished price sensitive information).
The latest amendment in this provision will now extend the automatic freeze of PAN and Demat accounts of the DP as well as their Immediate Relatives. Thus, it will curb the misuse of insider knowledge, even indirectly. This move is aimed at strengthening trust in the Indian capital markets and ensuring that all investors, whether big or small, are treated fairly. It is, thus, in direct line with the core SEBI objective of protecting retail investors’ interests and keeping the system transparent.
Closure of the trading window is an indication to the investor community of an upcoming corporate announcement that has the potential to trigger price swings. The closure itself does not directly move stock prices. It is simply a preventive measure to stop unfair trading. However, it can still have indirect effects on how investors and the market behave. The impact of the trading window closure on stock price is explained below.
When the trading window is closed, especially around the time of financial results or big announcements, investors understand that some major news may be coming soon. This creates a sense of anticipation or curiosity in the market. For example, if a company regularly posts good results and its trading window is closed, investors might expect strong earnings and begin buying shares in advance, which could push the price up. The opposite may happen if people fear the company will announce losses.
During the closure, insiders (and their relatives) who often trade in the stock are completely restricted from doing so. This can result in lower trading volumes (fewer buy/sell orders) in the stock during this period. When there is less activity, stock prices may become more stable or less volatile for that time. However, if outside investors suddenly become active, and insiders are not allowed to trade, it can sometimes lead to unusual price movement, either up or down, without insider involvement.
The biggest impact on stock prices often comes after the trading window reopens, which happens 48 hours after the major announcement (like quarterly results or mergers). This is when all investors, including insiders, have the same public information, and normal trading resumes.
At the time of the announcement of the news -
If the news is positive, the share price may go up sharply.
If the news is negative, the price may drop.
Thus, the real price movement happens after the closure, once everyone has access to the same information and can trade freely again
Trading window closure is a way to show that the company is following rules and protecting regular investors. It helps build trust in the stock market. When investors know that insiders are not allowed to misuse secret information, they are more confident in investing, which leads to healthier market behaviour and fairer stock prices.
The trading window closure is an important event for investors that can help them boost or restructure their portfolios. Here are a few pointers that investors need to consider,
Investors should know that when a listed company announces a trading window closure, it means certain employees (called insiders) and their close family members are temporarily not allowed to trade the company’s shares. This is done by SEBI to prevent unfair use of secret company information, like upcoming financial results or big decisions. While it does not directly affect regular investors, it is still a good signal that important news is on the way.
During the closure period, keep an eye on the company’s official updates, especially on the stock exchange (NSE or BSE) or the company’s investor section on their website. After the company announces its results or news, the trading window reopens 48 hours later. This is when the stock price may rise or fall depending on the news. This is a good time for investors to act, based on the actual information, not guesses.
Many investors wrongly assume that the trading window closure always means something bad or good is about to happen. However, the truth is, companies close their trading window regularly, especially before quarterly results, as a routine rule. Investors should avoid making sudden decisions based only on the closure. Stay calm, wait for the real announcement, and then decide whether to buy, sell, or hold based on facts.
Once the trading window reopens and the news is public, the stock price may move quickly. As an investor,
If the focus is long-term wealth creation, do not worry too much about small ups and downs.
If the focus is short-term trading, they can set target prices or stop losses to protect their profits or limit their losses.
Thus, it is important to always match the trading decisions with personal goals and risk level.
The trading window closure rule is not something negative, it is there to protect investors. It makes sure that no one gets unfair access to information. Everyone in the market, including investors, gets a fair and equal chance to trade once the news is officially made public. This builds trust in the stock market and keeps things fair for small investors.
It is common to see people sharing predictions or rumours about what a company might announce. It is important to try not to follow such talk blindly. Instead, investors should look at the company’s real performance, check financial reports, and understand its business. Making decisions based on facts instead of market gossip helps investors invest more safely and confidently.
Trading window closure is a rule set by SEBI to stop insiders and their family members from unfairly using secret company information for personal gain. While it does not directly affect regular investors, it is a sign that important news like financial results is coming soon. This rule helps protect fairness in the stock market and builds trust for long-term investing.
This article talks about an important aspect of SEBI regulations and their impact on investors. Let us know your thoughts on this topic or if you need further information on the same.
Read More: Market Cycles and Their Impact on Stock Fundamentals
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
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