New Delhi: The Securities and Exchange Board of India (SEBI) has reportedly put up a plan to bring mutual fund deals under strict insider trading rules in an attempt to prevent key executives of the mutual fund industry from misusing sensitive information.
At present, mutual fund units have been kept out of the definition of ‘securities’ under the Prohibition of Insider Trading (PIT) Regulations, and buying and selling of mutual fund units has been excluded from the definition of ‘trading’.
The market regulator has sought feedback from the public till July 29 on whether there is a need to amend the insider trading prohibition regulation to bring the mutual fund industry also under its purview. Further, this proposal has been made in view of the allegations of front-running at a large fund house.
In a discussion paper issued, Sebi has said that it has found that the Registrar of Mutual Funds and Transfer Agent (RTA) had encashed all their units from a scheme as they had some sensitive information related to the same. It has also been observed that some top players of the MF industry have redeemed their holdings on selectively possessing sensitive information and did not pass on the same to the unit holders of the scheme.
“MF units of mutual funds are specifically excluded from the purview of PIT Regulations. A need has, therefore, been felt to harmonise the provisions in PIT Regulations to initiate serious enforcement actions against those who misuse the sensitive non-public information pertaining to scheme of Mutual fund, directly or indirectly, which they have access, by virtue of their fiduciary capacity,” Sebi said in a discussion paper.
Sebi has considered applying ideas like connected persons, designated persons, closure period, and pre-clearance for MF transactions. Along with this, a code of conduct will also be made for the persons concerned. This will be applicable to all persons who handle unpublished price sensitive information relating to a mutual fund scheme or unit beyond working hours.
The market regulator has proposed to make it mandatory to report all the tradings of MF units executed by the Designated Persons of AMC/Trustees, their immediate relatives and by any other person for whom such person takes trading decisions to the Compliance Officer of AMC within 7 calendar days from the date of transaction and to specify that all such transactions above value of Rs 10 lakh are to be disclosed by the AMC on an independent platform as decided by regulator within 48 hours of receipt of the same.
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