Sebi tweaks MF rules to curb mkt abuse

The asset management company shall establish, implement and maintain a documented whistle-blower policy that shall provide for a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability, and establish procedures to ensure adequate protection of the whistleblowers, said Sebi

New Amendment:

♦ New rules effective from Nov 1

♦ Will curtail fraudulent transactions in securities

♦ C-level execs accountable for implementation of new mechanism 

New Delhi: Capital markets regulator Sebi has amended mutual fund (MF) norms requiring Asset Management Companies (AMCs) to put in place an institutional mechanism to identify and deter front-running and insider trading in securities. Additionally, the management of AMCs will be responsible for ensuring the effectiveness of the institutional mechanism. Also, the regulator has directed AMCs to have a whistle-blower mechanism. This came in the wake of Sebi’s passing two orders regarding front-running cases involving Axis AMC and Life Insurance Corporation of India (LIC).

In a gazette notification dated August 1, Sebi said: “Asset management companies shall put in place an institutional mechanism, as may be specified by the Board, for the identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities.”

Front-running refers to an illegal practice, where an entity trades based on advanced information from a stock broker or analyst before the information has been made available to clients. As per the notification, the Chief Executive Officer (CEO) or Managing Director (MD)or such other person of equivalent or analogous rank and Chief Compliance Officer of the asset management company will be responsible and accountable for the implementation of such an institutional mechanism.

Sebi added: “The asset management company shall establish, implement and maintain a documented whistle-blower policy that shall provide for a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability, and establish procedures to ensure adequate protection of the whistleblowers.”

To give these effects, the Securities and Exchange Board of India (Sebi) has amended mutual fund rules, which will come into force from November 1.