This development follows a nudge from the Securities and Exchange Board of India (SEBI) earlier this month, spurred by high-profile cases such as the allegations against Quant Mutual Fund and the Axis Mutual Fund front-running scandal a few years ago.
According to an annexure accessed by CNBC TV18, AMFI has mandated that Asset Management Companies (AMCs) implement comprehensive institutional mechanisms designed to detect and prevent market abuse.
These mechanisms include the establishment of Standard Operating Procedures (SOPs) for monitoring suspicious activities.
AMCs are now required to generate weekly alerts for any potential market abuse, with all identified suspicious trades undergoing thorough examination.
To further strengthen these efforts, AMCs must review all recorded communications, including emails and chats, associated with suspicious alerts.
The guidelines also mandate the use of biometric access to dealing rooms, ensuring that only authorized personnel are involved in trading activities.
Additionally, AMCs are instructed to maintain detailed entry logs of their investment team premises, providing a trail of access to sensitive areas.
In a bid to prevent continuous monitoring and possible manipulation, AMFI has enforced a mandatory leave policy, requiring fund managers and dealers to take at least 10 business days off annually, with a minimum of five consecutive days in each instance.
AMFI’s guidelines also extend to broker relationships, with AMCs now obligated to take decisive action against brokers involved in market abuse. This could include terminating agreements with such brokers and providing quarterly reports on these actions to SEBI.
Furthermore, AMCs are required to update employment contracts to incorporate strict anti-market abuse clauses, ensuring that any breach could lead to immediate suspension or termination.
To close potential loopholes, AMCs must retain and review all records of departing employees, ensuring that no unresolved issues related to market abuse remain.
This comprehensive approach aims to prevent any lingering threats even after employees exit the organization.
These measures will be implemented in phases, beginning in November 2024, with AMCs expected to comply with SEBI’s earlier directive to enhance transparency and accountability across the industry.
This move is seen as a crucial step in restoring investor confidence and ensuring that the mutual fund industry remains free of unethical practices.