Securities and Exchange Board of India (SEBI) issued a circular for strengthening the regulatory framework for insider trading in mutual fund (MF) units. This circular addresses mutual funds, asset management companies (AMCs), trustees, stock exchanges, depositories, and related entities. It expands on prior amendments made to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), especially those that were announced in November 2022.
Key Highlights of the Circular
Inclusion of Mutual Fund Units in PIT Regulations: The PIT Regulations, traditionally applied to trading in shares, bonds, and other securities, now include mutual fund units. The November 2022 notification marks a significant shift by bringing mutual funds under insider trading scrutiny. This change, effective from November 1, 2024, ensures that those with privileged information regarding mutual fund schemes are subject to insider trading prohibitions, just as they would be for other financial securities. The aim is to uphold market integrity and fairness for all investors.
Reporting Requirements: AMCs must now disclose the holdings of designated persons, trustees, and their immediate relatives on a quarterly basis starting from November 1, 2024. The initial disclosure of holdings as of October 31, 2024, must be made by November 15, 2024. For all subsequent quarters, AMCs must submit this information within 10 days of the quarter’s end. This will ensure transparency about the investments made by key personnel within the asset management ecosystem.
Transaction Reporting Threshold: SEBI has set a threshold for reporting transactions in mutual fund units. Any transaction (or series of transactions) by designated persons, trustees, or their immediate relatives, aggregating over INR 15 lakhs per quarter across all schemes, must be reported. The report should be submitted to the AMC’s compliance officer within two business days of the transaction.
Format and Disclosure of Violations: SEBI has outlined specific formats for reporting holdings and transactions. It has also emphasized the reporting of any violations under the PIT Regulations in a prescribed format. This ensures a streamlined and standardized approach to reporting across the mutual fund industry.
Harmonization with the Master Circular: SEBI also took steps to align the PIT Regulations with the existing guidelines outlined in the “Master Circular for Mutual Funds” (June 27, 2024). Notably, the Master Circular’s Clause 6.6, which governs the investment and trading restrictions for AMC employees, trustees, and directors, has been modified. This modification clarifies that while the previous Master Circular applied to investments in various securities, the PIT Regulations will now specifically govern transactions involving mutual fund units.
Cooling-Off Period for Securities Transactions: In cases of transactions involving securities, the circular emphasizes that employees must refrain from engaging in the purchase and sale, or sale and purchase, of any security within 30 calendar days of their personal transaction. If an employee violates this rule, they must provide a suitable explanation to the compliance officer, and the matter will be reported to the board of the AMC and the trustees.
