Let the comments commence: Compliance professionals finally have the details of the Securities and Exchange Commission's proposed rules to pay whistleblowers who report securities violations.

The proposals, detailed in a 181-page release published for comment Nov. 3, implement the Dodd-Frank mandate to set up a program to pay awards of up to 30 percent to eligible whistleblowers who voluntarily provide original information about potential securities law violations that lead to sanctions of $1 million or more.

The rules are being closely watched by companies due to worries that would-be whistleblowers will ignore internal reporting mechanisms and rush to report misconduct to the SEC in hopes of reaping a huge award.

SEC officials acknowledged concerns that the program could undercut corporate compliance efforts during the Nov. 3 open meeting where they approved publishing the release.

"This has the potential to reshape the corporate compliance landscape in undesirable ways," Commissioner Kathleen Casey said.

The release requests comment on the intersection between the program and internal reporting systems. The SEC also asks for recommendations on the structures, processes, and incentives it should consider "in order to strike the right balance between the Commission's need for a strong and effective whistleblower awards program, and the importance of preserving robust corporate structures for self-policing and self-reporting."

The release includes dozens of questions on how to define the terms whistleblower and original information, the criteria for determining eligibility for the amount of any awards, and the procedures for reporting violations and applying for awards.

Comments are due by Dec. 17. Final rules must be issued by April 17, 2011.

To help ease concerns that the bounty program will thwart corporate compliance efforts, the SEC proposed a 90-day grace period that allows employees to make an internal report and still preserve their eligibility to blow the whistle to the SEC. The proposals don't require internal reporting as a condition for eligibility.

Another issue out for comment is who's eligible for an award. For instance, as proposed, compliance personnel, auditors, lawyers, and others who obtain information through privileged communications, would be excluded from getting a bounty. Foreign government officials would also be ineligible.

Another open question is whether culpable whistleblowers should be allowed to benefit from their own misconduct. People who are criminally convicted in connection with the misconduct are ineligible for awards under the Dodd-Frank Act, but Commissioner Luis Aguilar noted that the law is silent on effect of a civil judgment, which he said "leaves open the possibility that some wrongdoers could get awards."

Enforcement Director Robert Khuzami said the new bounty program, along with recent enforcement changes, such as individual cooperation agreements, aim to motivate insiders, who often possess the most valuable information, to come forward early.

SEC Chairman Mary Schapiro noted that the agency gets thousands of tips every year, but few come from those close to the frauds as they are occurring.

"We hope that this new whistleblower program will change that," she said.

Still, other officials raised concerns that the SEC could be inundated with frivolous allegations. To that end, the rule proposals require information to be submitted under penalty of perjury, and anonymous whistleblowers must be represented by counsel who verify their identity. Thomas Sporkin, head of the SEC's Office of Market Intelligence, said those features should help ferret out low-quality or spurious tips.

Compliance Week will provide subscribers with full details in an upcoming edition.

At the same meeting, the SEC also voted to adopt a new rule 15c3-5, which requires brokers and dealers to have risk controls in place before giving their customers access to the market, effectively banning "unfiltered" or "naked" sponsored access to any exchange or alternative trading system. The rule takes effect 60 days after publication in the Federal Register, and broker-dealers will have six months to comply with the standards.

The Commission also voted to propose a new rule under the Dodd-Frank Act that applies the anti-fraud provisions that apply to securities to the offer, purchase, or sale of security-based swaps. The proposal also covers misconduct in connection with ongoing payments and deliveries under a security-based swap. Comments are due 45 days after publication in the Federal Register.

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