Capital markets regulator Securities and Exchanges Board of India's recent notification clarifies that the insider trading rules will encompass mutual fund units effective November 1, 2024. The regulations aim to bolster integrity and transparency within asset management companies (AMCs).
As per the notification dated July 26, "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."
The designated individuals at the asset management company, trustees, and their immediate relatives must report all transactions in the units of its mutual funds to the compliance officer within two business days from the date of the transaction, the Sebi order said.
Simply put the new rules prevent senior employees of fund houses from selling mutual fund holdings if they possess privileged information about impending issues within the company or its schemes. "In line with our dedication to safeguarding the interests of our investors, the institutional mechanism to prevent any potential market abuse is a new operational initiative, initiated by the industry and guided by the Securities and Exchange Board of India (Sebi)," AMFI said in a release on August 7.
AMFI reiterated its commitment to support and advance the principles of investor protection, and expressed happiness in working collaboratively with Sebi to implement these essential standards.
Background
For instance in Franklin Templeton fund house, in 2023, executives redeeming their holdings before six of its debt schemes shutting for redemption, have highlighted the necessity to strengthen regulations and ensure fair practices within the industry.
Sebi had already barred the personal buying and selling of mutual fund units by fund house officials in specific situations in a previous circular in November 2022 by bringing such transactions under the ambit of insider trading rules. However, the new change is that new proposals released two days back aim to broaden the definition of 'connected people' concerning insider trading rules.
These new proposals aim to align the definition of 'relative' in 'connected persons' with the Income Tax Act of 1961 to include lineal ascendants and descendants. It also suggests expanding the definition of connected persons to encompass more categories, such as firm partners, employees, and individuals with a significant financial relationship with a connected person.
