Markets regulator Sebi on Thursday came out with a new framework for investment and trading in securities by employees of Asset Management Companies (AMCs) and trustees of mutual funds. The framework will help in avoiding any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility.
In a circular, the Securities and Exchange Board of India (Sebi) said it has tweaked the guidelines pertaining to 'access person' and 'cooling off' period of such a person in respect of investments made by them in securities traded through the secondary markets. The employees, board members of AMCs and board members of trustees, including access persons, will not take undue advantage of any sensitive information that they may have about any company or its securities or about AMCs' schemes or its units.
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Access Person means the head of the AMC (CEO/managing director/president), executive directors, chief investment officer, chief risk officer, chief operation officer, chief information security officer, fund managers, dealers, research analysts, all employees in the fund operations department, compliance officer and heads of all divisions. In addition, non-executive directors of an AMC or trustee company who are in possession of or have access to any non-public information which could materially impact the price of the securities, Net Asset Value (NAV) of the scheme, will also be deemed as access persons.
The new framework will be applicable from December 1, 2021 while those related to refrain from profiting from the purchase and sale of any security within a period of 30 calendar days will become effective from Thursday. Further, all employees will refrain from profiting from the purchase and sale of any security within a period of 30 calendar days from the date of their personal transaction.
However, in cases where it is done, the employee will provide a suitable explanation to the compliance officer, which will be reported to the board of the AMC concerned and the trustees at the time of review. This clause will not be applicable in case of investments and redemptions made in mutual fund units as per the guidelines issued by the regulator on 'alignment of interest of key employees of AMCs with the unitholders of the mutual fund schemes'.
In respect of investments in securities done through the secondary markets, the regulator has relaxed the 'cooling off' period of 15 days for access persons. These relaxations are subject to certain conditions. This includes that such relaxations will be given by the compliance officer concerned for not more than two times in a financial year per access person. Such relaxation will be applicable only for sale of securities held by the access person for not less than a period of one year.
According to Sebi, access persons may apply anytime during the financial year for such relaxations to the compliance officer and the officer will decide on the application within five days of receipt of such application. Further, the person may sell the securities within 10 trading days from getting the clearance. The access person will have to ensure that from the time of making an application till the conclusion of the sale of the concerned securities, he/she is not in possession of any non-public information which could materially impact the price of the concerned securities.
In case of pre-existing pledges or encumbered arrangements — securities pledged prior to becoming an access person — the provisions of 'cooling off' period will not be applicable in case of sale of securities by lenders due to shortfall of margin under certain conditions. With regard to investments in units of mutual fund schemes, Sebi said that access persons as well as other employees do not require prior approval of compliance officer for purchase or sale of units of mutual fund schemes.
However, details of each such transaction, excluding transactions in overnight schemes, need to be reported to the compliance officer within seven calendar days of transaction. The regulator said that employees of AMCs, board members of AMCs and board members of trustees, including access persons, will not purchase or sell any scheme, including overnight scheme of their mutual fund, where any information available to the mutual fund is not yet communicated to the unitholders and which could materially impact the NAV or interest of unitholders.
This also include scenarios like restrictions on redemptions, winding up of scheme, creation of segregated portfolio, among others.