SEBI notifies inclusion of mutual funds in insider trading regulations

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Capital market regulator Securities and Exchange Board of India (SEBI) has included mutual fund houses in the stringent SEBI Prohibition of Insider Trading regulations through a gazette notification.

SEBI had taken a decision at its October 3 board meeting to include mutual fund (MF) units in the insider trading regulations. SEBI has now issued detailed guidelines.

The regulations state that any person who is connected with a fund house and comes into possession of unpublished, price-sensitive information shall not be permitted to trade in MF units wherein either the net asset value (NAV) of the scheme could get impacted or the interests of unitholders may be compromised.

SEBI has specified a list of people who will be considered insiders and be covered under the regulations.

Aside from the employees and board of directors of a fund house, it named sponsor and holding company, and so on, anyone who is part of the Association of Mutual Funds of India (AMFI; the MF industry’s trade body), an auditor, legal advisor, a consultant, a distributor and even a banker who’s connected with the fund house.

If any of these officials has been connected with the fund house within two months prior to the unpublished, price-sensitive information surfacing, they would be considered as Insider.

Fund houses will also now be required to publish MF holdings of their fund managers and designated people (as SEBI defines them; more of that later) on stock exchanges. If the designated officers buy or sell units in excess of their latest disclosed portfolio, then such transactions shall have to reported separately.

To make life a bit simpler for those outside the fund house, but may still be connected with the it and could come into possession of unpublished price-sensitive information, SEBI has demarcated fund house officials (also known as ‘designated person’; heads of fund houses, directors of fund houses and trustee companies, fund managers, risk officer, dealers, research analysts and so on) from outsiders like auditors, bankers, AMFI officials and so on.

Family and relatives of designated people will also now get classified as ‘designated persons.’

Once the unpublished, price-sensitive information surfaces within a fund house, its compliance officer will have to determine a time period within which no designated employee can buy or sell the MF units.

For outsiders who may have had an access to unpublished, price-sensitive information, fund houses are free to define a lock-in window (of not less than two months), after which they are free to buy or sell more schemes.

(This is a developing story. Please check back for an update)