mutual funds: insider trading rules may apply to mutual fund trading

Mumbai: Market regulator Securities and Exchange Board of India (Sebi) has proposed to introduce the buying and selling of mutual fund units under insider trading rules.

Currently, these are specifically excluded from the regulations on the prohibition of insider trading (ITP).

“The need has therefore arisen to harmonize the provisions of the PIT Regulation in order to initiate serious enforcement measures against those who misuse sensitive non-public information relating to the mutual fund regime. investment, to which they have access, by virtue of their fiduciary capacity,” Sebi said in a working paper on Friday.

Sebi’s decision comes in the wake of the 2020 Franklin Templeton crisis, where senior executives – including Vivek Kudva, FT’s Asia-Pacific director – and their relatives engaged in unfair business practices such as the withdrawal of some of their investments before the closure of the six debt schemes for buyouts on April 23.

The regulator has said in the past that a mutual fund registrar and transfer agent has been observed to redeem all of its shares in a plan, being aware of certain sensitive information relating to the plan. mutual fund, which had not yet been communicated to unitholders. of a special diet.

In another case, a few key staff members of a mutual fund were found to have redeemed their holdings in the plans while in possession of certain sensitive information not disclosed to the plan’s unitholders, a said the regulator.

Currently, insider trading rules apply to trading in securities of listed or offered-to-list companies when they are in possession of price-sensitive information.

The regulator said that with respect to mutual fund unit trading, it proposes to define unpublished price-sensitive information as any information relating to a pattern of a mutual fund that is not yet generally available and which could have a material effect on the net asset value) or materially affect the interests of unitholders.

For example, it could be a material change in the valuation of any asset, restrictions on redemptions, winding up of plans, a material change in the liquidity position of the mutual fund concerned or of a default of the underlying securities relating to the plan.

Sebi also proposed to make mandatory the reporting to the compliance officer of all mutual fund share transactions executed by designated persons of the portfolio management company (AMC), their relatives and by any other person for whom this person makes trading decisions. of the CMA.

Fund houses will also have to specify that all such transactions above ₹10 lakh must be disclosed by the AMC on an independent platform as decided by the regulator.

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