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Sebi proposes insider trading rules for mutual funds

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The Securities and Exchange Board of India (Sebi) has released a consultation paper seeking comments on a proposal to bring the purchase and sale of mutual fund units under the purview of the insider trading rules. The objective is to ensure parity between MF units and other securities with regard to insider trading rules under SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’).

The capital markets regulator has proposed that any person associated with the fund, who has direct or indirect access to unpublished price-sensitive information (UPSI) or any immediate relative of the connected person, officials or employees be subject to the insider trading rules.

According to the consultation paper, published price-sensitive information includes likelihood of change in investment objectives, accounting policy, valuation of assets, winding up of the plan and restrictions on redemption, among others. The responses need to be in by July 29.

The watchdog plans to set up an independent platform on which information can be accessed by participants in the plan so as to eliminate any discrimination. Moreover, Sebi wants that connected persons should disclose their transactions and holdings in mutual funds, or those of their immediate relatives every quarter.

Sebi observed that in the past a registrar and transfer agent of a mutual fund had redeemed all the units from a scheme as they were privy to certain sensitive information pertaining to the scheme of  the fund which was not yet communicated to unitholders of that particular scheme.

The regulator believes there is a need to harmonise the provisions in PIT Regulations to initiate serious enforcement actions against those who misuse the sensitive, non-public information pertaining to the scheme of mutual fund, directly or indirectly, which they have access to by virtue of their fiduciary capacity.

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