SEBI

Submission of voluntary information of Insider Trading

Insider Trading

The Insider trading is a punishable offence as per the SEBI (Prohibition of Insider Trading) Regulations 2015. Insider trading means purchasing and selling publicly traded company’s securities while possessing material information that has yet to become public. The material information refers to any information that may have a substantial impact on the decision of an investor in regard to the buying or selling of securities. The non-public information will mean that the information is not legally out in the public domain and that only a few people in top management possess such information. Henceforth, the SEBI, in order to protect the interests of the investors, has, through a notification SEBI (Prohibition of Insider Trading) (3rd Amendment) Regulations 2019, allowed the individual to submit a Voluntarily Information Disclosure Form in case if there is any violation of the insider trading laws that has occurred or there is a reasonable belief that it is about to occur. The present article will cover the submission process and other related provisions.

Submission of Original Information to the Board

Submission of information to Informant Protection Board of India: The individual holding insider trading information can submit original information by submitting the Voluntary Information Disclosure Form to the office of the Informant Protection Board of India in the specified format.

Submission by a legal representative: The form can also be submitted by the informant’s legal representative provided where it is not submitted by such a representative, the board may require such an informant to appear in person to ascertain through their identity and the veracity of the information of insider trading.

Rejection by the board: If the board receives any information in relation to the violation of securities law is not in the specified manner, the same may be rejected by the board and require the board to file it in accordance with SEBI (PIT) regulations.

Duties of the legal representatives: The legal representative is required to do the following:

  1. Verify the identity & contact details of the informant.
  2. Maintain the confidentiality of the identity and existence of the informant
  3. Must ensure that:
    • There is a revision of completed a designed Voluntary Information Disclosure Form for accuracy and completeness and to ensure that the information provided it is accurate, correct and complete.
    • The board receives an irrevocable consent from the informant and the original Voluntary Information Disclosure Form.
    • Voluntary Information Disclosure Form is provided within 7 days of receiving the request.

4. Submission of a copy of the Voluntary Information Disclosure Form along with a signed certificate. 

Erasure of all the information: The informant shall, while submitting the form, erase all such information where there are chances that it can reveal the informant’s identity. In case if there are chances that such information cannot be erased, the informant may identify such part of the information or any document that the informant believes could reveal its identity.

Receipt of the Original Information by the Board

Designating an Office: The board may designate a division which can work as an independent office of the Informant Protection.

Functions of the office: Further, the office is required to perform the following functions:

  1. Receiving & registering the Voluntary Information Disclosure Form
  2. Making all communications with an informant
  3. Establishing a hotline for the benefit of the informant.
  4. Maintain confidentiality of the informant’s legal representative and act as an interface between the officers of the board and the informant.
  5. Interaction with the Informant Incentive Committee
  6. Issue press releases & rewards relating to the informant.
  7. Submitting an annual report to the board in respect of the functioning of the office of Informant Protection.

Communication of Substantial Information: After receiving the form, the office of the Informant protection shall convey the substantial information on insider trading and evidences submitted by the informant to the department or division of the board for examination & initiation of necessary action.

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Not necessary to send any information: The board must not send any intimation or acknowledgment to the informant or any other person in respect of the action or examination initiated by the board after receiving the form or information of insider trading.

Information Reward

The board, after receiving the form and evidence from the informant, finds out that the information about insider trading is genuine, then it may declare an informant eligible for the reward and communicate it to the informant.

Filing of application for Reward: Further, the informant can claim its reward by filing an application in the specified manner. However, the reward amount shall be 10 % of the monetary sanctions and should not exceed Rs 10 Crore.

Reward amount is less or more than Rs 1 Crore: If the total amount payable as a reward is less than or equal to Rs 1 Crore, the board may grant the said reward at the time of issuance of the final order by the board. However, if the reward amount is more than Rs 1 Crore, the board may grant an interim reward, and the remaining reward amount shall be paid only upon collection or recovery of the monetary sanctions estimated to be at least twice the balance reward payable amount.

Co-informants: If there is more than one informant jointly providing the original information, in that case, the reward shall be divided equally among the total number of informants.

The reward, whether final or interim, must be paid from the IEPF.

Determination of the amount of reward

The board shall determine the reward amount. However, while determining the amount of reward, the board may specify the special conditions that may be taken into consideration by the IIC (Informant Incentive Committee).

Furthermore, the informant may be eligible for the reward whether or not the information about insider trading is submitted to the organisation as per its internal legal and compliance procedures. Also, the informant will be held liable for the reward even though the organisation’s compliance officer has provided the same information on insider trading to the board.

Application for reward

The informants who become eligible for the tentative reward must submit an Informant Reward claim form with the board against the time period for which the intimation is sent. Further, before the reward payment, the informant must disclose its identity and provide any other information as required by the board.

Rejection of Claim for Reward

The reward shall not be made to the Informant:

1. Who does not submit original information?

2. Who has acquired the original information as a member, officer or employee of:

  • Any Regulatory agency constituted under any law in India or outside India, including the board
  • Any self-regulatory organisation
  • The surveillance or investigation wings of any RSE or clearing corporation
  • Any law enforcement organisation, including the police or any central or state revenue authorities.

3. To the person against whom the board can initiate or has initiated criminal proceedings under the securities law.

4. Who deliberately refused to cooperate with the board during the course of investigation, inquiry, audit, examination or other proceedings under the securities law.

5. Who knowingly makes any fictitious, false or fraudulent statement or representation?

6. Who uses any false document or writing knowing that the document or  writing contains any fictitious, false, or fraudulent statement entry?

7. Who fails to furnish the complete information available to him and accessible by him in regard to the alleged violation?

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8. Who is under an obligation in any law to report original information to the board, including a compliance officer under securities law?

Confidentiality of informant

The confidentiality of the information is required to be maintained by the board. The related provisions in regard to the confidentiality of the informant are as follows:

Reasons for providing information: Any information (including original information) may be provided if:

  1. It must be disclosed in connection with any legal proceedings in furtherance of the legal position of the board.
  2. Permitted by the SEBI (PIT) Regulations
  3. Required or permitted by law

Providing Information to Organisations: The original information may  be made available to:

  1. Any regulatory agency constituted under any law in India or ousted India.
  2. Any self-regulatory organisation
  3. The investigation or surveillance wing of any recognised stock exchange
  4. Any law enforcement organisation, including the police or state revenue authorities.
  5. Public prosecutor if there is any relation to criminal proceedings.

However, such sharing of information shall be done as per the assurances of confidentiality as the board may determine to be appropriate. Further, the regulations shall not be intended to limit or construed to limit the public prosecutor’s ability to share the evidence with potential witnesses or accused with regard to any criminal proceedings.

Exemptions for RTI act: The identity and original information on insider trading provided by the informant shall be held in confidence & exempted from any disclosures under the RTI act[1]

Not prejudicial to the law of evidence: The board has the right to use and rely on the information on insider trading received. Further, it will not be precluded by these regulations except for the law of evidence.

Non-disclosure of personal information: No person can be compelled to make disclosure in regard to the identity, existence of an Informant or any information provided by the informant subject to the extent relied upon in any proceedings initiated against such person by the board. The confidentiality in regard to the identity and existence of the informant must be maintained throughout the process of investigation, inquiry and examination, as well as during any process before the board. Further, advance notice of at least 7 wording days before the hearing of evidence should be given where the evidence of the informant is required during the proceedings.  

Maintenance of confidentiality before any authority: The board can request for the maintenance of confidentiality of identity and the existence of an informant if the proceedings are under the authority.

Protection against retaliation and victimisation

Code of Conduct o contains protection measures: The person must make a code of conduct which shall contain the provision for suitable protection against any discharge, termination, suspension, demotion, threats, discrimination, or harassment against any employee who files Voluntary Information Disclosure Forms. However, it does not matter whether such information on insider trading is considered or rejected by the board or is eligible for a reward under regulations due to the following:

  1. Filing of Voluntary Information Disclosure Form
  2. Testifying, participating, assisting, and aiding the board in the investigation, inquiry, examination, audit, proceedings instituted or to be instituted for the violation of insider trading laws or aiding the enforcement action taken by the board.
  3. Breaching any confidentiality agreement or breaching any terms & conditions of employment or engagement solely to prevent any employee from cooperating with the board. The employee implies any individual who, during employment, becomes acquainted with the information relating to the violation of insider trading laws or files a voluntary information disclosure form. Laos, the employee is not required to establish that:
    • Board has taken any enforcement action in lieu of information supplied by the person.
    • The information provided is considered original information.
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Protection from victimisation or retaliation: The informant will not be prohibited by the employer who believes that they are subject to any victimisation or retaliation from approaching the court or tribunal.

Violation of the regulations: The employer who violates these provisions will be held liable for the penalty, debarment, criminal prosecution or suspension by the board. However, the board may not reinstate or compensate the employer.

The informant will not diminish the rights and privileges or remedies.

Void agreements

The terms of the agreement shall contain the following provisions:

Preclude any person from submitting the information: The terms of the agreement or the code of conduct are void if they preclude any person from submitting any information in violation of insider trading laws to the board.

Impeded from communicating due to threat or act: The informant shall not by threat or act be impeded from communicating any information with the board, including enforcing or threatening to enforce confidentiality agreement with respect to such communications.

No immunity be provided to the informant.

The informant will not be provided with any amnesty or immunity to an informant for violation of securities law. Further, if the board thinks that action against an informant is appropriate, it can take into account the cooperation rendered in the final determination of any penalty, direction, sanction or settlement.

Moreover, the board, at the time of determining the number of monetary sanctions, must take into account the monetary sanctions that the informant is ordered to pay or which any other person is ordered to pay if the liability of such other is based substantially on the conduct that the informant planned, directed or initiated.

Also, the informant may at any time file an application for seeking a settlement with confidentiality under Chapter IX of SEBI (Settlement Proceedings) Regulations 2018.

The informant may, after the payment of any monetary amounts, be held eligible for a reward.

Functions of Informant Incentive Committee

The functions of the Informant Incentive committee (IIC) are:

1. The office of informant protection shall assist the IIC.

2. The IIC shall provide its recommendations to the board on the matters:

  • Informant’s Eligibility for reward
  • A determination under regulations 7E and 7G
  • Any other issues

3. The IIC shall conduct its meetings in the specified manner.

Public Dissemination and incentivisation of Informant

The board is required to publish the following information on its website the following:

  1. Annual report of the office of Informant protection
  2. Press release that an intimation to the informant has been issued under regulation 7D.
  3. A press release that a reward has been paid and the amount of monetary sanctions are recovered
  4. Order issuing the reward

Conclusion

The insider trading laws are made stricter by the SEBI with the aim of protecting the securities market and the interest of the investor. Any individual who believes that there is a violation of the insider trading laws or there is a reasonable belief that it is about to occur then the individual can file a Voluntary Information Disclosure Form with the Informant Protection Board. Further, the informant may be rewarded by the board if, after examination and evidence, it is found that the said information is true. Moreover, to maintain the informant’s confidentiality, the board must make policies and procedures that may protect them. 

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