New Delhi, Nov 25: The buying and selling of mutual fund units are now included in the restrictions on insider trading according to changes made to regulations by the capital markets regulator Securities and Exchange Board of India (SEBI).
Currently, insider trading rules apply to dealing in securities of listed companies or those proposed to be listed, when in possession of Unpublished Price Sensitive Information (UPSI).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 most recent ruling comes in response to the Franklin Templeton incident, in which a small number of the fund house’s executives were charged with redeeming their investments in the schemes before the six debt schemes closed for redemption.
According to the new regulations, asset management companies (AMCs) must disclose specifics on holdings in the units of their mutual fund schemes, on an aggregate basis, held by the AMC, trustees, and their close 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.
Additionally, SEBI has established a minimal code of conduct for authorised individuals in accordance with the provisions of the current insider trading rules.
Furthermore, the closure time during which a designated individual is not permitted to transact in mutual fund units would be decided by the AMC’s compliance officer.
“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,” SEBI said while specifying institutional mechanism for prevention of insider trading.
All personnel who have access to UPSI are identified as designated persons as part of these internal controls to avoid insider trading, and all UPSI must be identified and kept confidential. To this purpose, SEBI revised the insider trading regulations, which took effect on November 24.