The Securities and Exchange Board of India (SEBI) has implemented a fresh strategy aimed at rewarding informants and whistle-blowers who disclose valuable information pertaining to cases of insider trading. The new approach places a mandatory disclosure requirement on the source of information, while ensuring the identity protection of the informant.
Key Elements of the New Mechanism
One of the primary requirements under the new SEBI rule is the obligation to divulge the source of furnished information on insider trading cases. However, to protect the informants, it has been made clear that their identity will not be revealed publically. In order to encourage more whistleblowing, incentives are provided to those whose information lead to a disgorgement of at least ₹1 crore, in alignment with the “Prohibition of Insider Trading (PIT) Regulations”.
Disgorgement refers to the repayment of ill-acquired gains by the wrongdoers as ordered by the courts. This repayment includes an interest component and implies that the profits gained through illegal or unethical business practices are returned to those affected by such actions.
The Office of Informant Protection (OIP)
To streamline the process of receiving and processing the Voluntary Information Disclosure Form, SEBI has set up the Office of Informant Protection (OIP). OIP acts as a bridge between the SEBI and the informants or their legal representatives. It is the responsibility of the informant to willingly provide original information related to any violation of insider trading laws to the OIP via the VID form. There is a requirement to disclose the informant’s identity at the time of the VID form submission.
If the information is submitted via a legal representative, there’s no need to disclose the informant’s identity at the time of the VID form submission. Nevertheless, before the reward is paid out, if any, the informant’s identity needs to be disclosed.
Insider Trading
Insider trading denotes trading, directly or indirectly, in the securities of a publicly listed company by any person who might be managing such a company. This trading is based on non-public information that has potential to influence the market price of the company’s securities.
The PIT Regulations prohibit the transfer of Unpublished Price Sensitive Information (UPSI) for anything other than legitimate purposes. These regulations along with the SEBI (Prohibition of Insider Trading) Regulations, 2015, and accompanying amendments and circulars issued from time to time, govern Insider Trading in India.
Whistleblowing in India
Defined by the Companies Act, 2013, whistleblowing refers to an action that calls out unethical practices in an organization. Whistle-blowers may be internal or external stakeholders including but not limited to employees, shareholders, legal consultants, or external auditors.
| Fact | Detail |
|---|---|
| Protection for Whistle-blowers | The WhistleBlowers Protection Act, 2014 safeguards whistle-blowers in India by protecting their identity and ensuring measures against victimization. |
| Unethical Practices | Any malpractice or misdeed which goes against the accepted norms and principles of business. |
| Insider Trading | Trading in the securities of a company based on confidential information which can affect the stock prices. |
Source
The information for this article was gathered from various reports published by The Hindu.
