New Guidelines Mandate Institutional Mechanisms to Prevent Market Abuse and Ensure Ethical Practices Among Asset Management Companies
In a decisive move to bolster investor confidence and uphold market integrity, the Securities and Exchange Board of India (SEBI) has introduced comprehensive reforms targeting the mutual fund industry. These reforms mandate Asset Management Companies (AMCs) to establish robust institutional mechanisms aimed at deterring market abuses such as front-running, insider trading, and other fraudulent activities.
Institutional Mechanisms to Deter Market Abuse
SEBI’s amended regulations require AMCs to implement structured systems comprising enhanced surveillance, internal control procedures, and clear escalation processes. These systems are designed to proactively identify, monitor, and address specific types of misconduct, including front-running, insider trading, and misuse of sensitive information. The responsibility for ensuring the effectiveness of these mechanisms rests with the management of the AMCs .
To ensure uniform implementation across the industry, the Association of Mutual Funds in India (AMFI), in consultation with SEBI, will prescribe detailed standards for these institutional mechanisms. This collaborative approach aims to foster transparency and accountability within the mutual fund sector.
Enhanced Ethical Standards and Employee Accountability
Beyond institutional mechanisms, SEBI has emphasized the importance of ethical standards in the sale, advertising, and marketing of mutual fund schemes. Fund houses are directed to segregate their other business activities, such as Portfolio Management Services (PMS) and advisory services, from mutual fund operations to prevent conflicts of interest .
Furthermore, AMCs are required to update employment contracts to incorporate strict anti-market abuse clauses. Any breach of these clauses could lead to immediate suspension or termination of the employee. To close potential loopholes, AMCs must retain and review all records of departing employees, ensuring that no unresolved issues related to market abuse remain .
Transparency in Personal Transactions
SEBI has also mandated that AMCs disclose the aggregate holdings of designated persons, trustees, and their immediate relatives on a quarterly basis. Additionally, any transactions in mutual fund units exceeding ₹15 lakh in a calendar quarter by designated persons must be reported to the AMC’s compliance officer within two days. These measures aim to enhance transparency and prevent misuse of insider information .
Conclusion
SEBI’s comprehensive reforms signify a robust effort to enhance transparency, deter market abuse, and ensure ethical practices within the mutual fund industry. By mandating institutional mechanisms, enforcing ethical standards, and increasing transparency in personal transactions, SEBI aims to protect investor interests and maintain the integrity of India’s financial markets.
Anantha Nageswaran is the chief editor and writer at TheBusinessBlaze.com. He specialises in business, finance, insurance, loan investment topics. With a strong background in business-finance and a passion for demystifying complex concepts, Anantha brings a unique perspective to his writing.
