SEBI Proposes Whistle Blower Mechanism to Curb Insider Trading

On 10th June, 2019, the Securities and Exchange Board of India (SEBI) proposed a whistle blower mechanism to tackle insider trading cases. The proposed policy would be implemented by amending SEBI (Prohibition of Insider Trading) Regulations, 2015.

Salient Features

  • Absolute Confidentiality: The mechanism would provide near absolute confidentiality along with appropriate safeguards, and it would help strengthen the mechanism for early detection of insider trading cases.
  • Dedicated Reporting Window: It will include a dedicated reporting window, voluntary information disclosure form, wherein the informant would submit details of credible, complete and original information relating to an act of insider trading, including communication of unpublished price sensitive information or trading in violation of the code of conduct.
  • Flexibility for Culprit to be Volunteer: An informant who is culpable but voluntarily co-operates and assists SEBI, may be eligible for reward under this scheme and shall also be eligible for settlement with confidentiality in the proceedings that may be initiated against him.
  • Huge Monetary Reward: The total amount of monetary reward, shall be 10% of the monies collected but shall not exceed rupees one crore or such higher amount as may be specified. The reward would be paid from the Investor Protection and Education Fund (IPEF).
  • Office of Informant: It has also mooted setting up of an Office of Informant Protection (OIP) that would device the policy relating to receipt and registration of Voluntary Information Disclosure Form (VIDF), deciding upon the issue of grant of reward to the informant upon completion of enforcement action and other related matters.

Significance

  • This move of SEBI signifies its zero tolerance approach towards insider trading and heightened focus on imposing strict accountability on the Corporate Chiefs to adopt appropriate measures to curb the malpractice and restore the faith of legal investors in securities market.

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