Informant Incentive Mechanism under PIT Regulations

SEBI vide notification dt: September 17, 2019 has notified third amendment to SEBI (Prohibition of Insider Trading [PIT]) Regulations 2015. Vide this amendment SEBI has inserted new Chapter IIIA. This chapter provides for “Informant protection scheme”.  

Informant has been defined to include any person who voluntary submits to SEBI original information relating to alleged violation of insider trading laws that has occurred, is occurring or has a reasonable belief that it is about to occur. Informant may include employees and consultants of company. Original information has been defined to mean any information derived from independent knowledge and analysis of informant.

Informant has been given choice to submit information with or without disclosing his or her identity. If SEBI makes a substantial recovery of penalty based on information provided by informant he would be eligible for monetary sanctions. These monetary sanctions will be at the discretion of SEBI. Also in some exceptional situations informant will not be eligible for monetary sanctions.

Original information provided by informant and identity of informant shall be held in confidence and will be exempted from disclosure under Right to Information Act 2005.

SEBI has also provided that the Board may at its sole discretion, declare an Informant eligible for Reward not exceeding Rs. 1 Cr. and on submission of Informant Reward Claim Form (Schedule E), informant may be paid reward from the Investor Protection and Education Fund.

SEBI has also provided that ‘informant’ providing original information shall be prevented against retaliation and victimization. For this, Every person required to have a Code of Conduct under PIT regulations shall ensure that such a Code of Conduct provides for suitable protection against any discharge, termination, demotion, suspension, threats, harassment, directly or indirectly or discrimination against any employee who acts as informant.