With several cases of insider trading in mutual funds coming to light recently, the Securities and Exchange Board of India (SEBI) has finally brought fund managers, directors of fund houses, trustees and other connected entities under the ambit of insider trading rules.
Listing detailed guidelines in the gazette, the regulator said connected entities will include board of directors and key management personnel of sponsor of the mutual fund, directors or employees of registrar and share transfer agents and custodians or valuation agencies of the mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations.
The Sebi board had earlier cleared the proposal. Fund managers of some fund houses had indulged in front running, making a huge money in the manipulation. Front-running, which is illegal in India, involves purchasing a stock based on advance exclusive information regarding an expected large transaction that will affect its price. Sebi has categorised front-running as a form of market manipulation and insider trading, and penalised several fund houses and fund managers in the past over this activity.
It has also brought an official or an employee of fund accountant providing services to a mutual fund, an official or an employee of a self-regulatory organization, an official of a stock exchange for dissemination of information, directors or employees of auditor, legal advisor or consultants of the mutual fund or asset management company, a banker of the mutual fund or AMC and a concern, firm, trust, HUF, company or association of persons wherein a director of an AMC and Trustees or his immediate relative or banker of the company, has more than ten per cent of the holding or interest under the rules.
Sebi said no insider should trade in the units of a scheme of a mutual fund, when in possession of unpublished price sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders of the scheme.
Off-market trades should be reported by the insiders to the asset management company within two working days. Every asset management company should notify the particulars of such trades to the stock exchange.
Off-market trades should be reported by the insiders to the asset management company within two working days. Every asset management company should notify the particulars of such trades to the stock exchange or in any other manner as may be specified by the Board within two trading days from receipt of the disclosure or from becoming aware of such information.
According to the Sebi, an AMC should, on such date as may be specified by the Board and on a quarterly basis, disclose the details of holdings in the units of its mutual fund schemes, on an aggregated basis, held by the designated persons of asset management company, trustees and their immediate relatives on the platform of stock exchanges or in any other manner as may be specified by the Board.
It said details of all the transactions in the units of its own mutual funds, above such thresholds as may be specified by the Board, executed by the designated persons of an AMC, trustees and their immediate relatives should be reported by the concerned person to the Compliance Officer of the AMC within two business days from the date of transaction.
Further, it said the board of directors of every AMC should ensure that the chief executive officer or managing director should formulate a code of conduct with their approval to regulate, monitor and report dealings in mutual fund units by the designated persons and immediate relatives of the designated persons towards achieving compliance with these regulations.
The AMC board and the boards or heads of the organisation of intermediaries and fiduciaries, should also ensure that the MDs and CEOs or such other analogous person complies with these regulations.