SEBI Proposes Whistleblower Mechanism for Insider Trading

Author: thinkinglegal | June 11, 2019 - 21:00 | Tags: Regulatory Advisory

Securities and Exchange Board of India (“SEBI”) on June 10, 2019 issued a discussion paper (“Discussion Paper”) on certain changes to be made to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) to introduce a whistleblower mechanism for insider trading specifically. The Discussion Paper has suggested introduction of a whistleblower policy under which information can be given to SEBI, and a reward of up to Rs. 1 crore can be given to the whistleblower.

The PIT Regulations have already been amended twice in the past one year. In the amendments, which came in to effect on April 1, 2019, SEBI had mandated that listed companies will have a whistle-blower policy and make employees aware of suchpolicy to enable employees to report instances of leak of unpublished price sensitive information.

Rationale behind Whistleblower Mechanism

The rationale for introducing a whistleblower mechanism is that SEBI faces a lot of difficulty in detecting insider trading since insidersusuallytrade through a proxytowhom the relevant information is communicated. Therefore, it becomes problematic to collect evidence, detect and initiate action against insider trading.

Grant of reward

In order to successfully prosecute cases of insider trading, information provided by the persons who may have inside knowledge of such violations is often helpful. Therefore, the Discussion Paper has proposedan informant incentivization and protection programme wherein the informant will be awarded a monetary reward. An informant is eligible for the monetary award only if there is a disgorgement of at least Rs. 5 crore on the basis of the information. The monetary award will be 10% of the monies collected as a result of any action taken on the basis of true, credible,complete and original information, subject to a maximum of Rs. 1 crore.

Additional Incentives for Whistleblower

If the whistleblower himself is culpable but voluntarily co-operates and assists SEBI, then he may be eligible for reward under this scheme and shall also be eligible for settlement with confidentiality in the proceedings that may be initiated against him.This is a measure to encourage co-conspirators to provide information without fear of action against the themselves.

Whistleblower’s Identity to Remain Confidential

The Discussion Paper proposes that an independent office separatefrom the investigation wings, Office of Informant Protection (“OIP”) will be established by the SEBI to check the veracity of the information received. The identity of the information and the informant will be protected by SEBI, except in cases where evidence of the whistleblower is required during the proceedings.

A whistleblower can also make a complaint through his legal representative. However, the identity of the informant will have to be reveled if the informant does not comply with the given guidance, when the nature of information requires the informant to be examined, when it is required to be disclosed in connection with any court proceedings or when SEBI requires the said information for verification at the time of granting the reward.


While there are already whistleblower mechanisms introduced by listed companies, the idea to have a mechanism where SEBI compensates the whistleblower may be more effective. The disclosure of identity of the whistleblower may be required in many cases of leak of UPSI since the whistleblower’s evidence regarding the source of leak may be crucial during proceedings.

This post has been contributed by Ms. Vaneesa Agrawal and Ms. Aiyushi Sahani.

[DISCLAIMER:  This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice.]