Insider trading rules for MFs effective from Nov 1 to boost transparency in AMCs

Insider trading rules: The Securities and Exchange Board of India (SEBI) has announced that insider trading rules for mutual funds will take effect from November 1, 2024, to improve transparency and integrity within asset management companies (AMCs).

"By mandating that employees with access to unpublished price-sensitive information be identified as designated persons, SEBI is ensuring vigilance," stated Anand Rathi Wealth Ltd Deputy CEO Feroze Azeez. This approach emphasises maintaining the confidentiality of sensitive information and placing adequate restrictions on its communication, underscoring SEBI's commitment to preventing insider trading.

The SEBI notification dated 26 July 2024 stated, “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The amended rules require AMCs to maintain lists of employees and other individuals with access to unpublished information and to ensure they sign confidentiality agreements or receive notices, adding an extra layer of security. The effectiveness of internal controls will be periodically reviewed.

In July 2022, SEBI released a consultation paper to include the buying and selling of mutual fund units under insider trading rules, followed by a gazette notification in November 2022. The enforcement of the rules was delayed due to industry resistance and operational challenges in establishing common standards.

According to the new rules, insiders are prohibited from trading mutual fund units while in possession of unpublished price-sensitive information (UPSI) that could materially impact the net asset value of a scheme or the interests of unit holders.

This decision follows the Franklin Templeton incident, where several executives were accused of redeeming their holdings in schemes before the closure of six debt schemes for redemption.

Under the new regulations, AMCs must disclose aggregated holdings in mutual fund units by the AMC, trustees, and their immediate relatives on stock exchange platforms. "Details of all transactions in the units of its own mutual funds executed by the designated persons of the asset management company, trustees, and their immediate relatives shall be reported by the concerned person to the compliance officer of the asset management company within two business days from the date of transaction," SEBI stated.

(With PTI inputs)