The Securities and Exchange Board of India (Sebi) on Monday proposed a mechanism to formalise the process of receiving information from whistle-blowers who expose insider trading violations. It also suggested measures to protect and award such informants.
The monetary reward would be considered under certain conditions. For instance, the monies disgorged should be at least Rs 5 crore.
"The total amount of monetary reward shall be 10 per cent of the monies collected but shall not exceed Rs 1 crore or such higher amount as may be specified," Sebi said.
"An interim reward not exceeding Rs 10 lakh may be given at the stage of issuance of the final order by 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 to at least twice the final reward," Sebi added in the consultation paper. The regulator also proposed that a culprit could be eligible for the award if he assisted in exposing the violation. "An informant who is culpable but voluntarily cooperates and assists Sebi may be eligible for a reward under this scheme and shall also be eligible for settlement with confidentiality in the proceedings that may be initiated against him. This shall, however, not prohibit initiation of action for any misconduct," the consultation paper said.
The mechanism for receiving such information would require the informant to fill a Voluntary Information Disclosure Form (VIDF) with credible, complete and original information related to the insider trading, including those pertaining to unpublished price-sensitive information.
While directly submitting the VIDF, the informant would need to disclose the identity. In case an informant wishes to submit anonymously, the VIDF should be submitted through a representative who is a practicing advocate.
It would be mandatory for the informant to disclose the source of the original information, besides providing an undertaking that the information had not been sourced from any person related to Sebi, it said. The regulator also mooted setting up an Office of Informant Protection (OIP) that would make policy related to receipt and registration of VIDF, deciding on the issue of grant of reward to the informant upon completion of enforcement action and other related issues.