Mutual Funds Rules New

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SEBI proposes insider trading rules applicability in mutual fund dealings

Capital markets regulator SEBI proposed the applicability of insider trading rules to dealings in mutual fund units to initiate serious enforcement action against those who misuse sensitive non-public information relating to such investment products.

Currently, insider trading rules apply to dealing in securities of listed companies or proposed to be listed, when in possession of unpublished price-sensitive information ‘UPSI’. Units of Mutual Funds (MFs) are specifically excluded from the definition of securities under the rules.

The proposal came after SEBI noticed that the registrar and transfer agent of a mutual fund had encashed all its units from a scheme, being privy to certain sensitive information relating to the scheme of a mutual fund, which was not yet communicated to the unit holders of a particular scheme.

Similarly, in another instance, some key personnel of a mutual fund redeemed their stake in the schemes, while the possession of some sensitive information was not communicated to the unit holders of the schemes.

In its consultation paper, the regulator has proposed to amend the definition of securities, trading and insider trading, and recommended that the applicability of insider trading rules should be inserted with respect to dealing in the units of a mutual fund.

The amended definition of “trading” includes subscribing, redeeming, switching, buying, selling, dealing or agreeing to subscribe, redeeming, switching or dealing in any securities.

Asset Management Companies (AMCs) are proposed to disclose the details of holdings in units of mutual fund schemes held by the designated persons of AMC /Trustees and their immediate relatives on an independent platform and the date as specified by SEBI and to require disclosures quarterly thereafter.

SEBI has proposed to make it mandatory to report all the tradings of mutual fund 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 seven days from the date of transaction and to specify that all such transactions above the value of Rs 10 lakh are to be disclosed by the AMC on an independent platform as decided by the regulator within 48 hours of receipt of the same.

In addition, the Compliance Officer of the AMC should stipulate the closure period during which a nominee cannot transact in the units of the mutual fund. Also, the regulator has suggested setting a minimum standard of code of conduct for designated persons in line with the provisions of the existing insider trading rules.

The regulator felt the need to harmonize the provisions of PIT (Prohibition of Insider Trading) norms to initiate serious enforcement action against those who misuse the sensitive non-public information pertaining to the scheme of mutual funds, directly or indirectly, to which they have access, by their fiduciary capacity.

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