Analysis: SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2021

CS Tanveer Singh Saluja | Last updated: 12 August 2021

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The Securities and Exchange Board of India (SEBI) has introduced amendments to the Prohibition of Insider Trading Regulations, 2015, focusing on rewards for informants. The changes simplify the reward process by removing the condition of collecting twice the reward amount before payout. The maximum reward limit has been significantly increased from Rs 1 crore to Rs 10 crore, with specific provisions for interim rewards.

The SEBI has notified a new set of regulations to amend the existing SEBI (Prohibition of Insider Trading) Regulations, 2015 which shall come into force as on the date of its publication in the Official Gazette. The amendment relates to the provisions of reward to informants.

SEBI Insider Trading Rules 2021: Informant Rewards Updated

Sr. No.

Amendment

Comments

Substitution, Omission: Regulation 7D(1)

(i) the words 'Upon collection or substantial recovery of the monetary sanctions amounting to at least twice the Reward, the' shall be substituted with the word 'The'.

(ii) in the first proviso,

(A) the words 'collected or recovered' shall be omitted;

(B) the words 'one crore' shall be substituted with the words 'ten crores';

(iii) the second proviso shall be omitted;

The SEBI has removed the condition of collection or substantial recovery of the monetary sanctions amounting to at least twice the reward from sub-regulation (1), so as to make it clear and simple that it can declare an Informant eligible for reward without keeping in consideration the amount of collection or recovery. However, in line with this condition, a proviso is added in sub-regulation (1A) for the cases where amount of reward exceeds Rs 1crore.

Further, in line with the sub-regulation (1) proviso is amended and also the maximum limit of reward is increased from Rs 1 crore to Rs 10 crore.

Furthermore, second proviso which talks about interim reward is omitted and the same is now covered under the new sub-regulation (1A).

Insertion: after Regulation 7D(1)

(1A) If the total reward payable is less than or equal to Rupees One Crore, the Board may grant the said reward upon the issuance of the final order by the Board:

Provided that in case the total reward payable is more than Rupees One Crore, the Board may grant an interim reward not exceeding Rupees One Crore upon the issuance of the final order by the Board and the remaining reward amount shall be paid only upon collection or recovery of the monetary sanctions amounting to at least twice the balance reward amount payable.

Reward Payable

Granting

≤ Rs 1 crore

Upon issuance of final order

> Rs 1 crore

- Interim order not exceeding Rs 1 crore upon issuance of final order

- Remaining balance upon collection or recovery of the monetary sanctions amounting to at least twice the balance reward amount payable

Insertion: after Regulation 7D

NOTE: An illustrative table of the reward payable under this provision is stated below:

Illustrative table of the reward payable

(Amount in crore rupees)

A	Monetary Sanctions	≥100.00	20.00	10.00	5.00	1.00
B	Total Reward Payable = 10% of Monetary Sanctions subject to maximum of Rupees 10.0 crores.	10.00	2.00	1.00	0.50	0.10
C	Maximum Amount Payable as Interim Reward (on the issuance of final order by the Board against the person directed to disgorge) = Total Reward Payable (B) or Rupees 1.00 Crore, whichever is less.	1.00	1.00	1.00	0.50	0.10
D	Balance Amount of Reward Payable (B- C).	9.00	1.00	NIL because the entire reward was paid after passing of final order.
E	Minimum Amount to be collected / recovered by SEBI, or balance amount of reward (D) to become payable = Twice the Balance Amount of Reward Payable (2 x D).	18.00	2.00	Not Applicable as the amount of Interim reward itself is equal to total eligible reward.

Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at cstanveersaluja@gmail.com.