Insider trading rules for mutual funds from Nov 1 to enhance transparency in AMCs

Capital markets regulator Sebi has notified November 1 as the effective date for the implementation of insider trading rules aimed at enhancing the integrity and transparency within asset management companies (AMCs). “By mandating that employees with access to unpublished price-sensitive information be identified as designated persons, Sebi is ensuring vigilance,” Anand Rathi Wealth Ltd Deputy CEO Feroze Azeez said. This emphasis on maintaining the confidentiality of sensitive information and placing adequate restrictions on its communication underscores Sebi’s commitment to preventing insider trading, he added.

“The Board hereby appoints the 1st day of November 2024 as the date on which Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2022 shall come into force,” according to a notification dated July 26.

The amended rules require maintaining lists of employees and other individuals who have access to unpublished information, along with signing confidentiality agreements or serving notices, which adds an extra layer of security, Azeez said.

The periodic process will review the effectiveness of internal controls.

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In July 2022, Sebi released a consultation paper to bring the buying and selling of mutual fund units under the ambit of insider trading rules.

This was followed by a gazette notification in November 2022.

The enforcement of the law was delayed primarily due to industry resistance and operational challenges in establishing common standards, industry experts said.

As per the notification, an insider cannot trade in the units of a mutual fund scheme while in possession of unpublished price-sensitive information (UPSI), which may have a material impact on the net asset value of a scheme or on the interest of the unit holders of the scheme.

Sebi’s decision followed 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.

Under the rule, 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 the asset management company, trustees and their immediate relatives shall be reported by the concerned person to the compliance officer of the asset management company within two business days from the date of transaction,” the regulator had said.