SEBI has notified amendments to the SEBI (Prohibition of Insider Trading Regulations) 2015 (PIT Regulations) to incorporate an Informant Mechanism and an Informant Reward Policy by way of a new Chapter IIIA, effective from 26 December 2019. This Mechanism/Policy was proposed in a Discussion Paper dated 10 June 2019, approved in the Board Meeting of 21 August 2019, to overcome several challenges in dealing with violations of insider trading. The challenges are, the flow of information, absence of details of generation of information, identification of connection between insiders and those who traded unpublished price sensitive information (UPSI) and establishing that trading took place while in possession of UPSI. A formal mechanism that specifies a reporting procedure and provides incentives and protection for the informants will, in SEBI’s view, instil confidence in the market and encourage informants to report such issues without any fear of victimisation or loss of employment.

The key features of the Informant Mechanism are as follows:

• An “informant” means any individual who voluntarily submits a Voluntary Information Disclosure Form (VIDF) providing credible, complete and original information relating to an act of insider trading that has occurred, is occurring or is reasonably believed to occur.
• It is mandatory to provide the source of the original information along with an undertaking that such information has not been obtained from a SEBI employee or any related regulator.
• An independent office called the Office of Informant Protection (OIP) may be established which will set up the process of receiving, verifying, authenticating and analysing the VIDF. The OIP will also decide on the grant of reward to the informant post completion of enforcement action and recovery of disgorged amounts.
• The identity of the informant is required to be disclosed on the submission of the VIDF. In case the informant wishes to submit anonymously, VIDF may be filed through a legal representative. Personal appearance before the OIP may be required for ascertaining identity and verification of information in the VIDF. OIP is obligated to maintain confidentiality regarding the identity of the informant unless his evidence is required during SEBI proceedings. The legal representative will obtain a non-waivable consent to disclose the identity of the informant if required in connection with any court proceeding or when required by SEBI.
• The OIP will process the information given by the informant and may transfer it to the dealing departments for further action, after redacting information that may reveal the identity of the informant. The OIP will submit a report to SEBI on an annual basis, which will also be released to the public. It will also maintain a hotline to provide guidance to persons to file information.
• The final reward will be issued after recovery of the disgorged amount which should equal at least twice the final reward. Provided that the amount of reward shall be 10% of the amount collected but shall not exceed Rs. 1 crore or such higher amount as may be specified. An interim reward not exceeding Rs. 10 lakhs may be given at the stage of issue of the final order by SEBI against the person directed to disgorge. The reward shall be paid out of the Investor Protection and Education Fund (IPEF).
• The amount of the reward, if payable, will be determined by the Board. An Informant Incentive Committee, assisted by the OIP, shall give its recommendations to the Board on the eligibility of the informant, amount of reward and rejection of claim for reward.
• Original information may be shared with any other appropriate regulatory and law enforcement authority within or outside India, subject to SEBI’s discretion. The confidentiality of the identity of the informant will however be maintained, unless circumstances require otherwise.
• Information provided will be exempted from disclosure u/s 8(1)(g) and 8(1)(h) of the RTI Act.
• Listed companies and intermediaries dealing with UPSI shall incorporate in their Code of Conduct suitable provisions to ensure that no employee who files a VIDF or assists the OIP is discharged, terminated, demoted, suspended, threatened or discriminated, directly or indirectly, for breach of the company’s confidentiality agreement. In case of violation of the Code of Conduct, penalties, prosecution proceedings, debarment etc may be levied/initiated by SEBI.
• If an action/proceeding is initiated against an Informant, SEBI will consider the co-operation extended by him and declare him eligible for a reward after he has paid monetary penalties levied against him or complied with directions. An informant who is culpable, but voluntarily co-operates, may be eligible for a reward or settlement, with confidentiality in the proceedings.