New Delhi. The Securities and Exchange Board of India (SEBI) has amended the mutual fund norms. Under the amendment, asset management companies (AMCs) will have to establish an institutional mechanism to identify and prevent ‘front-running’ and insider trading in securities.
Apart from this, the management of the AMC will be responsible for ensuring the efficiency of the institutional mechanism. SEBI has also directed the AMC to create a ‘whistle-blower’ mechanism.
SEBI’s decision comes after passing two orders in connection with ‘front-running’ cases involving Axis AMC and Life Insurance Corporation of India (LIC). SEBI said in a gazette notification dated August 1, “Asset management companies shall establish institutional mechanisms specified by the board to identify and prevent potential market abuses including ‘front-running’ and insider trading in securities.”
What is front running?
‘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 going to affect the price of that transaction to a great extent. Similarly, insider trading also takes place in which some influential people profit from the leak of inside news of the company and influence the investors.
Also Read: Tajmahal Tourism: Tourists visiting Taj Mahal will not be able to take these things with them – strict orders issued
Now who will be responsible for this?
According to the notification issued by SEBI, 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. SEBI said, the asset management company will establish and implement a ‘whistle-blower’ policy. This 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.
When will the new rule be implemented?
For all these changes, the Securities and Exchange Board of India has amended the mutual fund rules. These changes will come into effect from November 1. After this, like the stock market, the rules for mutual funds will also become strict. This means that after the new rule comes, the responsibility and accountability of asset management companies will increase further.
