Sebi Amends Mutual Fund Rules: The market regulator has also directed AMCs to create a ‘whistle-blower’ mechanism. SEBI’s decision comes after it passed two orders regarding ‘front-running’ cases involving Axis AMC and Life Insurance Corporation of India (LIC)
Market regulator SEBI has changed the rules to prevent front running and insider trading in mutual funds. Under this, asset management companies (AMCs) will have to establish an institutional mechanism. Apart from this, the management of the AMC will be responsible for ensuring the betterment of the institutional mechanism. The market regulator has also directed the AMC to create a ‘whistle-blower’ mechanism. SEBI’s decision comes after passing two orders regarding ‘front-running’ cases involving Axis AMC and Life Insurance Corporation of India (LIC).
SEBI issued notification
SEBI said in an August 1 gazette notification, “Asset management companies shall establish institutional mechanisms specified by the board to identify and prevent potential market abuse, including ‘front-running’ and insider trading in securities.” Front-running is the trading of shares or any other financial asset by a broker who has insider information about a future transaction that is likely to significantly affect the price of that transaction.
According to the notification, the Chief Executive Officer (CEO) or Managing Director or any other person of equivalent rank and the Chief Compliance Officer of the asset management company will be responsible and accountable for the implementation of such institutional mechanism.
New rules will come into effect from November 1
SEBI said, “The asset management company will establish and implement a ‘whistle-blower’ policy, which will be a confidential mechanism for employees, directors, trustees and other stakeholders to raise concerns about suspected fraud, improper or unethical behavior, violation of regulatory or legal requirement or conduct of business. Steps will also be taken to ensure adequate protection of the whistle-blower.” For all these changes, SEBI has changed the mutual fund rules. These changes will come into effect from November 1.
