Through a gazette announcement, the capital market regulator Securities and Exchange Board of India (SEBI) has included mutual fund houses in the strict SEBI Prohibition of Insider Trading regulations. At its October 3 board meeting, SEBI decided to include mutual fund (MF) units in the insider trading restrictions. SEBI has now provided specific recommendations.
The regulations indicate that anyone associated with a fund house who comes into possession of unpublished, price-sensitive information is not permitted to deal in MF units where the scheme’s net asset value (NAV) or unitholders’ interests may be jeopardized. SEBI has defined a list of individuals who will be considered insiders and subject to the regulations.
Aside from fund house employees and board of directors, it named sponsor and holding company, and so on, anyone who is a member of the Association of Mutual Funds of India (AMFI; the MF industry’s trade body), an auditor, legal advisor, consultant, distributor, and even a banker who is connected with the fund house.
If executives were linked with the fund house within two months of price-sensitive information appearing, they would be considered Insiders. Fund houses will also be forced to publish MF holdings of their fund managers and designated people on stock exchanges. If designated officials buy or sell more than their disclosed portfolio, the transactions must be reported separately.
Designated Persons
SEBI has separated fund house officials (also known as ‘designated persons’; heads of fund houses, directors of fund houses and trustee companies, fund managers, risk officers, dealers, research analysts, and so on) from outsiders such as auditors, bankers, AMFI officials, and so on.
Family and relatives of designated people will henceforth be classified as ‘designated persons’. When unpublished, price-sensitive information appears within a fund house. The compliance officer must specify a time period during which no designated employee may acquire or sell MF units.
Outsiders who may have had access to unpublished, price-sensitive information are free to define a lock-in timeframe. After which they are free to acquire or sell more schemes.
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