Markets regulator Sebi on September 29 decided to make mutual fund managers more accountable by introducing a code of conduct for them and tightened disclosure norms with regard to forensic audit of listed entities.
The watchdog also decided to strengthen the role of debenture trustees and amend insider trading norms. The board of Sebi approved setting up of a limited purpose repo-clearing corporation, a move aimed at boosting repo trading in corporate bonds, the regulator said in a statement.
Such clearing corporation would help in guaranteed settlement of tri-party repo trades in all investment grade corporate bonds, including those below 'AAA' rated. The board after deliberation, approved the amendment of mutual fund regulations, to introduce a code of conduct for fund managers including chief investment officers and dealers of asset management companies (AMCs).
The chief executive officer (CEO) will be responsible to ensure that the code of conduct is followed by all such officers. Currently, mutual fund norms require AMCs and trustees to follow a code of conduct. Omkeshwar Singh, head RankMF at Samco Securities, said introduction of code of conduct for fund managers is a welcome step.
"This will have positive long term effect and will ensure that the mandate of the scheme is properly adhered to and the conduct of funds management team can be recorded and monitored," he said. According to him, this will increase trust of investors in fund management process in times to come. This also increases the accountability of the CEO on the conduct of fund management team and processes.
Sebi also permitted AMCs to become a self-clearing member of the recognised clearing corporations to clear and settle trades in the debt segment of recognised stock exchanges, on behalf of its mutual fund scheme. In order to address the gaps in availability of information, Sebi said that listed entities will have to make disclosures about initiation of forensic audit.
The listed entities will make disclosures about the fact of initiation of forensic audit along-with name of entity initiating such audit and reasons for the same if available to stock exchanges. Further, the companies will be required to disclose about final forensic audit report, other than for forensic audit initiated by regulatory or enforcement agencies, on receipt by the listed entity, along with comments of the management, if any.
The disclosure need to be made "without any application of materiality", Sebi said. Under the informant mechanism, Sebi has allowed informants a time period of three years to report any violation of insider trading rules.
Sebi also strengthened the role of debenture trustees by ensuring that they carry out independent due diligence of the assets on which charge is being created. Also, they would convene the meeting of debenture holders for enforcement of security, joining the inter-creditor agreement under the framework specified by RBI.
In addition, they would carry out continuous monitoring of the asset cover including obtaining mandatory certificate from the statutory auditor on half yearly basis. In respect of delisting, Sebi has decided to grant exemption from the reverse book building process for delisting of listed subsidiary, when it becomes the wholly-owned subsidiary of the listed parent pursuant to a scheme of arrangement.
To be eligible to take this route, the listed holding company and the listed subsidiary should be in the same line of business. The board also approved amendment to norms pertaining to alternative investment fund, which includes definition of "relevant professional qualification" and provides that the qualification and experience criteria of the investment team, may be fulfilled individually or collectively by personnel of key investment team of the manager.