Capital markets regulator Sebi has amended norms to bring buying and selling of mutual fund units under the ambit of insider trading rules.
At present, insider trading rules are applicable to dealing in securities of listed companies or those proposed to be listed, when in possession of Unpublished Price Sensitive Information (UPSI). The units of mutual funds are specifically excluded from the definition of securities under the rules.
Sebi’s latest decision follows the Franklin Templeton episode, in which the fund house’s few executives were accused of redeeming their holdings in the schemes ahead of the six debt schemes shutting for redemption.
“No insider shall trade in the units of a scheme of a mutual fund, when in possession of unpublished price sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit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,” Sebi said in a notification issued on Thursday.
Under the new rules, asset management companies (AMCs) will have to disclose the details of holdings in the units of its mutual fund schemes, on an aggregated basis, held by the AMC, trustees and their immediate relatives on the platform of stock exchanges “Details of all the transactions in the units of its own mutual funds… executed by the designated persons of asset management company, trustees and their immediate relatives shall be reported by the concerned person to the compliance officer of asset management company within two business days from the date of transaction,” the regulator said.
Also, the the Sebi has prescribed a minimum standard of code of conduct for designated persons in line with provisions of existing insider trading rules.
Further, the compliance officer of the AMC would determine the closure period during which a designated person cannot transact in units of the mutual fund.
Specifying institutional mechanism for prevention of insider trading, Sebi said, ” Chief Executive Officer or Managing Director of an asset management company with the approval of the trustee or such other analogous person of an intermediary or fiduciary, shall put in place adequate and effective system of internal controls to ensure compliance with the requirements given in these regulations to prevent insider trading.” These internal controls to prevent insider trading include all employees who have access to UPSI are identified as designated persons and all the UPSI needs to be identified and its confidentiality be maintained.
To give this effect, Sebi amended insider trading norms that became effective from November 24.