A quick look into Sebi's fresh push to crackdown on insider trading

The market regulator recently raised the reward for providing credible information that leads to prosecution from Rs 1 crore to Rs 10 crore

In 2019, the Securities and Exchange Board of India (Sebi) introduced the ‘informant mechanism’ to crackdown on the menace of insider trading. Initially, the regulator announced a reward of Rs 1 crore to any individual who provided credible information that led to prosecution.

The mechanism has not yet taken off. Last month, Sebi increased the reward from Rs 1 crore to Rs 10 crore and also streamlined the framework in a bid to give a fresh push.

“The suggested amendments are to streamline the process of reward payment, enhance the quantum and certainty of reward with an intent to make the mechanism more effective and to better serve the purpose that was envisaged at the time of introduction of the mechanism,” Sebi has said in its board meeting agenda paper.

We look at the scenario analysis that could lead to a reward of Rs 10 crore. Under the new work, the total reward payable is 10 per cent of monetary sanctions subject to a maximum of Rs 10 crore. As a result, for an informant to receive the maximum reward, the final order passed by Sebi has to be for disgorgement of a minimum Rs 100 crore. In such cases, Sebi will pay Rs 1 crore as an interim reward and the balance of Rs 9 crore only after it collects or recovers that total disgorgement amount from the wrongdoer. In case the final order is for disgorgement of Rs 10 crore, the total reward of 10 per cent will be paid entirely as interim reward.