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To check wrongdoing in markets, the National Stock Exchange (NSE) has put in place an anonymous whistle-blower mechanism, similar to the Dodd-Frank Whistleblower Programme in the US.
The US Securities and Exchange Commission (SEC)’s whistle-blower mechanism has had a fair degree of success. Overall, the programme has received about 3,000 tip-offs, from 55 foreign countries. In 2013, India ranked fifth in terms of the number of tip-offs provided to US regulators (18), according to annual data on the programme.
The NSE’s platform for tip-offs on cases relating to market manipulation and regulatory violations is web-based. The platform can be accessed on the exchange’s website, which also provides a toll-free number for providing tip-offs.
“This section intends to invite information and tips on violations/manipulations that might adversely affect the market quality and integrity…NSE treats all tips and information received under this section as confidential and does not disclose such information to anyone, unless required by statute, regulation or court of law,” said a note.
“Anyone in the market can use this anonymous portal to report any important surveillance-related information to the exchange,” said an NSE spokesperson.
The mechanism has been in place for about 45 days. The exchange declined to provide information on the number of tip-offs received so far, citing confidentiality issues.
A source said BSE and Multi Commodity Exchange-Stock Exchange also had dedicated email addresses for investor grievances. Requests for comment to both didn’t receive replies.
| WHISTLE-BLOWER PLATFORM FOR THE STOCK MARKET |
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What does the platform do? It allows people to provide tips on wrongdoing anonymously What kind of tips is the exchange looking for? Primarily on market manipulation and violation of regulations What are the ways in which a whistle-blower can pass on information? Whistle-blowers can do it through a telephone number or web portal Where else is this practised in the world? The United States SEC has a strong whistle-blower platform in place. The Nigerian Stock Exchange recently launched one, called ‘X-Whistle’ How could it be made more effective? Experts say offering a reward may spur more tips. However, an effective investigation arm which can quickly and accurately get to the bottom of complaints is a must |
Vidya Rajarao, partner (forensic services), Grant Thornton India LLP, said such platforms could be a useful way of identifying irregularities. “A whistle-blowing mechanism is an effective tool to report instances of wrongdoing, as whistle-blowers will have intimate knowledge of possible violations and misconduct. However, the mechanism must be anonymous and confidential. The focus should be on original and credible information, supported by adequate evidence, which a regulator can act upon,” she said.
Rohit Mahajan, senior director and head, Deloitte’s forensic services (India), said global regulators were increasingly waking up to the benefits of putting in place a whistle-blowing system. “The concept of an exchange incorporating a similar mechanism is gaining traction globally. In the US, the concept of whistle-blowing is perhaps the most advanced, as it has been put in place by the regulator — the SEC… This trend is gradually picking up in some developing/emerging markets, too. One such case in point is the Nigerian Stock Exchange (NGSE) which launched a whistle-blowing portal (X-Whistle) earlier this year.”
The SEC also has a reward programme for whistle-blowers — it provides a reward of 10-30 per cent of monetary sanctions imposed as a result of a tip-off.
“Whether the exchange offers rewards similar to those offered by the SEC remains to be seen. It might not be necessary to pay as much, since many well-known whistle-blowers have clearly been motivated principles, rather than monetary rewards,” said Deloitte’s Mahajan.
Jagvinder Brar, partner (forensics), KPMG in India, said a reward system might work well, provided investigations were efficient. “In India, one has to treat a financial reward system with caution....Such systems work best in an enabling environment, in which investigating agencies are able to resolve complaints quickly and with a high degree of confidence,” he said.
