Insider trading norms for MFs hang fire a year after notification

New norms may be made effective from January or April next year, with another three to six months for implementation [View in browser]( [See all newsletters]( 28 November 2023 Insider trading norms for MFs hang fire a year after notification A year after market regulator brought mutual funds under the ambit of insider trading regulations, the norms are yet to get enforced. There are operational hurdles in setting up common industry standards, even as the Association of Mutual Funds in India has held several talks with SEBI on the matter, said two people in the know. There could be issues at the exchange’s end as well. The SEBI issued a consultation paper on applicability of its PIT Regulations 2015 to MF units in July last year. In November, a notification brought within its fold all types of mutual funds, whether listed or unlisted, with exemptions for exchange-traded funds and systematic investment plans. “Practically, the rules have not been enforced and are still not effective. The industry has held talks with the regulator on the practical challenges,” said a senior MF official. “Rules have been laid down in a hurry without thinking through operational indiosyncracies. For instance, each MF scheme could hold multiple ISINs, which could pose a challenge,” added another senior official. Digital database Under the new norms, AMCs and fiduciaries who do business with them are required to maintain a structured digital database, which is a master roster that tracks each instance of UPSI shared within and outside the asset management company. “This is uncharted territory for AMCs as new processes would be required to be impelemented to capture the data and include outside persons who may be aware of such information such as auditors and valuers. With preclearance of transactions in MF units required for employees, new issues could emerge as there is no precedence to rely on as to what would constitute UPSI which may affect the net asset value of MF schemes,” said Anil Choudhary, Partner, Finsec Law Advisors. Speculation is rife that the norms may be made effective from January or April next year, with another three to six months for implementation. “The understanding is that SEBI has to greenlight this by way of another notification. In my view that is not correct. A common digital database was to be set up and the format was agreed upon. The exchanges were supposed to create a reporting framework. The delay is uncalled for. Despite niggling operational issues, the norms should have been made effective within three months,” said another MF official. An email sent to SEBI and the exchanges did not immediately get a response. A text message sent to an AMFI official remained unanswered. Lessons learnt from FT episode Some industry experts maintain that there is no need for separate regulations under PIT as the SEBI master circular for mutual funds already prohibits employees and directors from trading in MF units when in possession of UPSI. “The new norms are an overkill. While employees of AMCs are mandatorily required to invest in MF units of their AMCs, restrictions are now being placed on employees for sale of these units. In the past 30 years, there have been at most 2-3 instances of front running found by SEBI,” said Choudhary. SEBI’s decision to bring MFs within the insider trading ambit follows the Franklin Templeton episode, in which a few fund officials were accused of redeeming holdings in schemes that were about to be wound down. Under the net Proposal to bring MF units under insider trading regs first mooted by Sodhi Committee in 2013 MFs brought under PIT regulations in Nov ‘22 Norms aim to prevent situations where scheme NAV could be impacted by sharing of UPSI Insider defined as a connected person or someone in possession of UPSI pertaining to a scheme Connected persons are directors & KMPs of MFs, employees of fund accountants, registrars, custodians or valuation agencies of MFs You Might Also Like [Foxconn to invest another $1.6 billion in India in China+1 push]( [Info-tech]( [Foxconn to invest another $1.6 billion in India in China+1 push]( [Urea sales up 15% in October as higher imports turn handy]( [Agri Business]( [Urea sales up 15% in October as higher imports turn handy]( [Rise in bond issuances: NBFCs and banks brace for continued surge in H2 FY24]( [Money & Banking]( [Rise in bond issuances: NBFCs and banks brace for continued surge in H2 FY24]( [S&P Global revises growth forecast up for FY24 but cuts for FY25]( [Economy]( [S&P Global revises growth forecast up for FY24 but cuts for FY25]( Stay informed Subscribe to businessline to stay up-to-date with in-depth business news from India [arrow]( Copyright @ 2023, THG PUBLISHING PVT LTD. If you are facing any trouble in viewing this newsletter, please try [here]( Manage your newsletter subscription preferences [here]( If you do not wish to receive such emails go [here](