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On August 5, the Securities and Exchange Board of India (SEBI) announced a set of new measures aimed at combating front-running and insider trading within asset management companies (AMCs). The regulations, detailed in a recent circular, introduce an “institutional mechanism” designed to bolster oversight and prevent fraudulent practices within the sector.
The new framework places significant responsibility for compliance and ethical conduct on the CEOs or managing directors and Chief Compliance Officers (CCOs) of AMCs. According to the circular, AMCs are now mandated to develop and implement comprehensive written policies to address potential market abuses, including front-running, insider trading, and the misuse of sensitive information. These policies must be approved by the AMC’s board and must outline clear actions for handling any breaches.
Under the new rules, AMCs are expected to take stringent actions against any employees or entities involved in market abuse. This may involve corrective actions such as suspension or dismissal. Additionally, AMCs are required to draft an escalation policy that will alert their boards to potential market abuse and detail the results of internal examinations conducted by the firm.
SEBI’s latest initiative is part of a broader effort to enhance transparency and integrity in the capital markets. By holding asset management firms accountable for their conduct and the actions of their employees, SEBI aims to strengthen the regulatory framework governing mutual funds and restore confidence among investors.
These regulations are set to be implemented immediately, marking a significant advancement in SEBI’s ongoing efforts to improve market surveillance and prevent fraudulent activities. This move is expected to have a lasting impact on the asset management industry and contribute to a more robust and transparent financial market.