Introduction
Insider trading is a recognized securities-related offence under Nepali law. It occurs when a person purchases or sells securities (or causes another person to do so) on the basis of unpublished price-sensitive information (“UPSI”). Such conduct creates an unfair advantage, distorts market integrity, and undermines investor confidence.
This Legal Guide examines the complete legal framework applicable to insider trading under the Securities Act, 2063 (2006) — covering the definition of the offence, who qualifies as an insider, investigation and prosecution procedures, penalties, compensation, director disqualification, and the important changes introduced by the Money Laundering (Third Amendment) Ordinance, 2083 (2026).
A. Insider Trading under the Securities Act
Section 91 of the Securities Act defines insider trading as follows:
“If any person deals in securities or causes any other person to deal in securities on the basis of any insider information or notice that are unpublished or communicates any information or notice known to such a person in the course of the discharge of his or her duties in a manner likely to affect the price of securities, such a person shall be deemed to have committed an insider trading in securities.”
Section 91(2) clarifies an important point: the mere occurrence of insider trading does not render a completed transaction void or invalid. The individual responsible remains fully liable to punishment, but the transaction itself stands. This provision protects the rights of innocent counterparties who were not involved in the insider trading.
B. What Constitutes Insider Information (UPSI)
“Insider information” means any specific information or notice relating to a body corporate issuing securities that:
- has not been made public, and
- is capable of materially affecting the price of such securities if disclosed.
This is commonly referred to as unpublished price-sensitive information (UPSI).
Section 93 of the Securities Act sets out when information is considered publicly disclosed. Information is treated as public when it has been:
- duly published for investors and professional advisors in accordance with securities market regulations;
- incorporated in records that are legally accessible to the public;
- made available on the trading floor or within the market for access by prospective traders; or
- otherwise disseminated in a manner that ensures general public accessibility.
Any information that does not meet these criteria may be treated as UPSI.
C. Who Are Considered Insiders?
The following categories of persons are regarded as insiders because they are in a position to access UPSI:
- Directors, Employees, or Shareholders — Any director, employee, or shareholder capable of obtaining unpublished information relating to the company by virtue of their position or relationship with the company.
- Professional Service Providers — Any person capable of obtaining insider information while providing professional services to the organized institution (e.g., lawyers, auditors, consultants).
- Connected Persons — Any person who directly or indirectly obtains insider information through contact, relation, or association with the persons mentioned above.
D. Requirements for Establishing Insider Trading
To establish the offence of insider trading, the following conditions must generally be satisfied:
- The person must have had access to UPSI; and
- The securities transaction must have been carried out on the basis of such UPSI.
Mere possession of information alone is not sufficient unless the transaction can be linked to that information.
E. Penalties and Compensation under the Securities Act
Where insider trading is established, the Securities Act provides the following consequences:
S.N. | Offence / Provision | Consequences |
|---|---|---|
1 | Section 101 – Penalty | Confiscation of the amount involved in the offence; Fine equal to the amount involved; Imprisonment for up to 1 year; or both. |
2 | Section 105 – Compensation | Any person who suffers loss due to insider trading may recover damages and compensation from the offender. |
3 | Section 108 – Disqualification | A director, general manager, or equivalent office-holder convicted under Section 101 shall be disqualified from holding such office in any public limited company or body for up to 10 years from the date of punishment. |
Important Note: Despite these penalties, Section 91(2) protects the validity of the completed transaction itself so that innocent buyers or sellers are not prejudiced.
F. Investigation and Adjudication Framework
The Securities Act (Sections 102–106) sets out a structured process for investigation and prosecution:
Stage | Process | Key Details |
|---|---|---|
1 | Initial Investigation | The Chairman of the Securities Board (SEBON) appoints an officer to conduct a preliminary investigation. Investigation may be initiated on the basis of a complaint or any other information received by the Board. |
2 | Powers of Investigation Officer | The officer may inquire with relevant persons or institutions and request documents, details, and records. |
3 | Forwarding to Police Headquarters | If evidence indicates an offence has been committed, the complaint and case file must be forwarded to the Police Headquarters within 30 days. An officer from the Board may be designated to assist. |
4 | Investigation by Police | Police Headquarters appoints an officer of at least the rank of Inspector. After investigation, a report is submitted to the Office of the District Government Attorney. |
5 | Filing of Charge Sheet | The Government Attorney decides whether to prosecute. If so, the charge sheet is filed before the competent District Court within 35 days from completion of investigation. The case is a state case (Government of Nepal is the plaintiff). |
6 | Detention & Suspension | The Board may require bail or guarantee of assets if there is reasonable ground to believe the person may abscond or cause loss to assets. Failure to furnish may result in custody. The Board may also recommend suspension of the person from office if there is risk of evidence being destroyed or investigation being obstructed. |
7 | Appeal | An appeal against the decision may be filed before the competent High Court. |
G. Money Laundering Aspect – Impact of the 2083 Ordinance
The Money Laundering (Third Amendment) Ordinance, 2083 (dated 2083/01/18 B.S. / 1 May 2026) has significantly changed the investigation of money-laundering cases linked to insider trading.
Key changes:
S.N. | Process | Description |
|---|---|---|
1 | Investigation Authority | Money-laundering matters associated with insider trading are now investigated by the Department of Money Laundering Investigation. |
2 | Government Attorney’s Office | The Department forwards the case file to the Government Attorney’s Office designated by the Government of Nepal (likely the Special Government Attorney’s Office). |
3 | Court Authority | Cases are initiated before the Special Court. |
4 | Recommendation for Prosecution | Even if no separate prosecution has been initiated for the predicate offence (insider trading), the Department may recommend prosecution for that related offence along with money laundering. |
Important clarification:
The investigation mechanism under the Securities Act continues to apply where a pure insider-trading complaint is filed with SEBON. However, where a complaint involving money laundering linked to insider trading is filed with the Department of Money Laundering Investigation, the Department will conduct the investigation under the amended Money Laundering Prevention Act.
