PFUTP Regulations
Also written Prohibition of Fraudulent and Unfair Trade Practices Regulations · PFUTP
SEBI's 2003 regulations banning fraudulent, unfair and manipulative trade practices in the securities market, including a specific list of dealings deemed fraudulent regardless of actual gain or loss.
In plain language
Some securities-law violations are about misusing secret information. PFUTP is different. It is about outright cheating and manipulation in the market itself. Inside information does not need to be involved at all.
SEBI calls this law the PFUTP Regulations, 2003. In full, it is the Prohibition of Fraudulent and Unfair Trade Practices Regulations. It bans fraudulent, unfair and manipulative trade practices in securities. Regulation 2(1)(c) defines fraud in a wide way. Fraud includes any act, statement, omission or hidden fact. The act must be meant to push another person, or their agent, to deal in securities. That push is the wrong. It does not matter what happens afterwards.
How it works
What is banned outright (Chapter II of the Regulations). A person may not, directly or indirectly: buy, sell or deal in securities fraudulently; use any manipulative or deceptive device connected with a listed or to-be-listed security's issue, purchase or sale; employ any device, scheme or artifice to defraud in dealing with or issuing securities; engage in any act or course of business operating as a fraud or deceit; or indulge in any fraudulent or unfair trade practice in securities.
Dealings deemed manipulative, fraudulent or unfair, the workbook's list:
a) knowingly creating a false or misleading appearance of trading; b) dealing in a security not meant to transfer beneficial ownership, but only to inflate, depress or fluctuate its price for wrongful gain; c) inducing subscription to a securities issue by fraudulently securing minimum subscription, including by advancing money; d) inducing dealing in securities to artificially move their price, including by paying or offering money; e) any act or omission manipulating a security's price, including its reference or benchmark price; f) knowingly publishing untrue information about securities, financial results, mergers, regulatory approvals, before or during dealing in them; g) entering a transaction with no intention of performing it or transferring ownership, or dealing in stolen, counterfeit or fraudulently issued securities.
For the specific fraud definition and its "no loss required" rule, see Fraud under PFUTP Regulations.
A worked example
Figures illustrative; the workbook states the deemed-practices list in words, not as a worked example.
A group of traders coordinates to place ₹18,00,000 of buy orders in a thinly traded small-cap stock in the last 15 minutes of the trading session, on days when they have no genuine intention of holding the shares, purely to push up the closing price. The coordinated buying moves the stock's closing price up 9% in a single session. The next morning, they circulate a message claiming the stock is about to announce a major order win, a claim they know to be untrue, to induce other retail investors to buy in at the inflated price, before selling their own holdings into that demand.
This single scheme touches at least three of the workbook's deemed practices: the coordinated closing-price trades create a false appearance of trading activity; the trading manipulates the closing price itself; and the false claim about an order win is knowingly untrue information published to induce dealing. Under PFUTP, it does not matter whether every retail investor who bought actually lost money. The fraudulent and manipulative acts are themselves the violation.
Why NISM asks about it
Chapter 12 (Regulatory, Governance and Ethical Aspects of Portfolio Managers), section 12.3, sets out the PFUTP Regulations right after the insider trading chapter, and the workbook includes a fill-in-the-blank sample question built directly from this section. Expect a scenario question asking which of the deemed practices a described act falls under, and a question on the Regulation 2(1)(c) fraud definition.
Common exam traps
- PFUTP and insider trading are separate SEBI regimes. PFUTP covers fraud and manipulation generally; insider trading covers trading on unpublished price-sensitive information specifically. A scenario question may test which regime applies.
- The deemed-practices list covers price manipulation, false statements and sham transactions. It is broader than just lying about a company.
- Actual profit or loss is not required to establish a violation — see Fraud under PFUTP Regulations for this specific holding.
- The prohibition applies to "any person", directly or indirectly. It is not limited to company insiders or intermediaries.
Check yourself
1.The SEBI PFUTP Regulations prohibit a person, directly or indirectly, to ______ securities in a fraudulent manner.
- a)Buy
- b)Sell
- c)Deal in
- d)All of the above
Show the answer
Answer: (d) All of the above
The regulations prohibit a person to buy, sell or deal in securities in a fraudulent manner, directly or indirectly. So all of the above.
This mirrors the workbook's sample question.
Where this is taught
Free preparation for NISM Series XXI-ARelated terms
- Conflict of interestAny interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
- Front runningUsing non-public knowledge of a substantial impending order to trade ahead of it in the same or related securities or derivatives, expecting the price to move once the order becomes public.
- Fraud under PFUTP RegulationsAny act, statement or hidden fact used to induce someone to deal in securities, as SEBI's 2003 fraud regulations define it — whether or not actual gain or loss results.
- FraudUnder SEBI PFUTP Regulations, 2003: any act, expression, omission or concealment committed to induce another person or his agent to deal in securities, whether or not anyone gains or avoids a loss.