In a bid to protect the interests of investors and curb insider trading cases, the Securities and Exchange Board of India (Sebi) has proposed an informant mechanism wherein genuine whistleblowers will be rewarded for exposing fraud and wrongdoing in a company.
Proposing a mechanism that provides “near absolute confidentiality along with appropriate safeguards”, Sebi said it would help strengthen the mechanism for early detection of insider trading cases.
Insider trading refers to trading of securities while in possession of Unpublished Price Sensitive Information (UPSI) about the particular securities.
The regulator said it faces several challenges while investigating insider trading cases as direct evidence is not easily available.
“It is desirable that Sebi considers instituting a process that enables timely reporting of instances of insider trading violations and also provide for grant of reward with adequate checks and balances that could incentivise timely reporting of information,” according to a consultation paper by Sebi.
The regulator said it will provide adequate safeguards against victimisation of the informant.
“The confidentiality regarding the identity of the informant and information provided shall be protected through the OIP and shall be maintained throughout as well as during any proceeding initiated by Sebi except where the evidence of the informant is required during such proceedings,” Sebi said.
Sebi said it would reward the informant with 10 percent of the monies collected but it would not exceed Rs 1 crore.
“An interim reward not exceeding Rs 10 lakhs may be given at the stage of issuance of the final order by the Sebi against the person directed to disgorge. The final reward, after adjusting the interim reward, shall be issued after collection or recovery of the monies disgorged equal atleast twice the final reward,” Sebi said.
The reward would be paid from the Investor Protection and Education Fund (IPEF).