INSIDER TRADING

Background:

• Meaning: Insider trading is defined in the SEBI (Prohibition of Insider Trading) Regulations, 2015 to mean trading of securities while in possession of unpublished price sensitive information (‘UPSI’).
  
  
• Challenges: Insiders usually indulge in insider trading through a proxy to whom the relevant information is communicated. Direct evidence of such communication is seldom available, thus detection and prosecution of insider trading remains a challenge.
  
  
• In this background, SEBI has proposed amendments to The SEBI (PIT) Regulations, 2015 which would include the following features.
  
  

Proposed amendments:

• A framework would be established to reward and protect individuals who bring forward instances of violations of insider trading norms.
  
  
• If such information leads to a final order by SEBI with a minimum disgorgement of ₹5 crore, then a monetary award of 10% of the money collected by SEBI, subject to a cap of ₹1 crore, can be given to the informant. The reward will be paid from the Investor Protection and Education Fund (IPEF).
  
  
• An Office of Informant Protection will be established. It will be independent of the investigation and inspection wings of the regulatory body.
  
  
• While the informant would be required to disclose his or her identity at the time of submission of the complaint in the official format, an anonymous complaint can also be submitted through an authorised representative who is a practising advocate.
  
  
• To protect complainants against victimisation, all listed companies and intermediaries would include provisions in their code of conduct to ensure that such individuals are not “discharged, terminated, demoted, suspended, threatened or discriminated against, directly or indirectly.
  
  
• However, if a complaint is found to be frivolous, the regulator can initiate actions against the informant.