The Sebi board had already approved the proposal. Some fund managers engaged in front running and made a ton of money doing the manipulation.
The Securities and Exchange Board of India (SEBI) has finally included fund managers, directors of different fund houses, trustees, and also other connected entities under the scope of insider trading regulations as a result of a number of recent cases of insider trading in mutual funds that have come to light.
According to the regulator, connected entities will include the board of directors and key management personnel of the mutual fund sponsor, directors or employees of the registrar and share transfer agents, custodians or valuation agencies of the mutual fund, and anyone else who has access to or is reasonably expected to also have access to unpublished price sensitive information relating to a mutual fund scheme or its main units in the course of business operations. The regulator published detailed guidelines in the gazette.
The proposal had already been approved by the Sebi board. Some fund managers engaged in front running and made a ton of money doing the manipulation. Front-running, which is forbidden in India, is the practice of buying a stock in anticipation of a significant transaction that will impact its price.
Front-running is a form of market manipulation and insider trading, according to Sebi, which has previously fined several fund houses and fund managers for the practice.
It has also brought directors or employees of the auditor, legal advisor or consultants of the mutual fund or mainly asset management company, a banker of the mutual fund or AMC, and also a concern, firm, trust, HUF, company or association of persons wherein a director of an AMC a director.
According to Sebi, no insider should trade in the units of a mutual fund scheme while in possession of unpublished price-sensitive information that could materially affect the scheme’s net asset value or the interests of its unit holders.
Insiders must notify the asset management firm of off-market trades within two business days. Within two trading days of receiving the disclosure or learning of the information, each asset management company must disclose the specifics of such trades to the main stock exchange or in any other manner the Board may specify.
According to the Sebi, an AMC is required to disclose on the platforms of stock exchanges or in any other manner that the Board may specify, on such date as may be specified by the Board and on a quarterly basis, the specifics of holdings in the units of its mutual fund schemes held, on an aggregate basis, by the designated persons of the current asset management company, trustees, and their immediate relatives.
It stated that within two business days of the transaction date, the concerned person must notify the AMC’s Compliance Officer of all details of all transactions in the units of its own mutual funds, above any thresholds that the Board may specify, that were carried out by trustees, designated persons of an AMC, or both.
Furthermore, it stated that in order to achieve compliance with these rules, the board of directors of each AMC should make sure the chief executive officer or managing director develops a code of conduct with their approval. The code of conduct will regulate, monitor, and report dealings in mutual fund units by the designated persons and their close family members.
The AMC board, as well as the boards or leaders of organizations of intermediaries and fiduciaries, should make sure that MDs and CEOs, or any other similar individuals, abide by these rules.
Sebi releases a framework for addressing stock broker system technical issues.
According to the market regulator, as quick technological advancements have made electronic trading in securities markets easier, technology-related interruptions and glitches and their effects on investors’ trading opportunities have grown to be a significant technology-related risk.
The Securities Exchange Board of India (Sebi) released a framework on Friday to address technical issues that arise in the stock brokers’ trading systems.
According to the market regulator, as quick technological advancements have made electronic trading in securities markets easier, technology-related interruptions and glitches and their effects on investors’ trading opportunities have grown to be a significant technology-related risk.
According to the new framework, which will go into effect on April 1, 2023, stock brokers will have to notify stock exchanges within an hour of the time the glitch occurred of any malfunction in their system or one that was outsourced from any third parties that caused a stoppage or slowdown of operations for five minutes or more.
Within 14 days of the incident, they must submit a root cause analysis (RCA) report of the technical issue to the stock exchange, according to Sebi.
The regulator stated that stock brokers will need adequate capacity planning to provide continuity of services to their clients because an increase in investors may place an additional burden on the trading system.
The installed capacity will be at least 1.5 times the observed peak load, and stock brokers will be required to monitor the peak load in their trading applications, servers, and network architecture.
According to the framework, stock brokers must make sure that all software updates to their applications are thoroughly tested before being incorporated into the live system.
All software developed by stock brokers or their vendors will be placed in test-driven environments.
According to the regulator, stock brokers will be required to set up a business continuity/disaster recovery (DR) set up if they have a certain number of clients across all exchanges.
A thorough business continuity planning (BCP)-DR policy document outlining standard operating procedures to be also followed in the event of any disaster will be put in place.
The Recovery Time Objective (RTO), which is the maximum time taken to restore operations from the Disaster Recovery Site (DRS) after the declaration of disaster, and the Recovery Point Objective (RPO), which is the maximum tolerable period for which data might be lost due to a major incident, will be determined by the stock exchanges in consultation with stock brokers, according to the framework.
For technical issues with their trading systems and non-compliance with the relevant provisions, stock exchanges will need to set up a system of financial penalties that apply to stock brokers.
Edited by Prakriti Arora
