The Securities and Exchange Board of India (SEBI) recently circulated a discussion paper on amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT regulations), towards provisioning for an informant mechanism.
The PIT regulations define insider trading as trading of securities while in possession of unpublished price sensitive information (UPSI). While persons indulge in insider trading indirectly through proxies, SEBI, like most other regulators, has been facing challenges in effectively verifying instances of insider trading violations because of insufficient evidence.
The discussion paper states that the mandate of the SEBI Act, 1992, is to “protect the interests of investors in securities and to promote the development of and regulate the securities market, which makes it imperative for SEBI to employ all legitimate means to detect and initiate action against insider trading at the earliest to instil confidence among investors and ensure the integrity of the securities markets in line with the mandate conferred upon it”.
The proposed amendments seek to establish systems and processes (among listed companies and SEBI) to incentivize individuals to report insider trading violations with rewards of up to ₹100 million (US$150,000) if SEBI undertakes disgorgement of at least ₹50 million from the action taken based on true, credible and original information.
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