Sebi Board Meeting: Regulator announces steps to curb fraudulent trades in mutual funds

The Securities and Exchange Board of India (Sebi), the country’s capital market regulator, on Tuesday cleared certain changes to certain rules governing mutual funds, including an institutional mechanism aimed at countering fraudulent trades such as insider trading and front-running. 

The development confirmed a Zee Business newsbreak. The channel had reported earlier in the day, citing sources, that the agenda of the Sebi board meeting included such a mechanism in mutual funds, besides the regulator’s annual financial report for the year 2023-24. 

Here are some of the key things to know about this big development: 

What is the institutional mechanism? A key change in the mutual fund norms requires asset management companies (AMCs) to put in place a mechanism for identification and deterrence of potential market abuse, such as front-running and fraudulent transactions in securities. 

The institutional mechanism should consist of enhanced surveillance systems, internal control procedures, and escalation processes to identify, monitor and address specific types of misconduct, including front-running, insider trading, and misuse of sensitive information, Sebi said in a statement released after the meeting

The board also approved fast-tracking of the issuance of non-convertible securities, in a move aimed at strengthening the corporate debt market.

It also cleared an amendment to allow depositories to send only digital submissions of Consolidated Account Statements, without having to send the same in physical form. Depositories had sought an exemption from the physical submissions in a bid to save on costs. 

The Sebi board also approved a proposal to provide an option to the venture capital funds (VCFs) registered under the erstwhile VCF norms, to migrate into Alternative Investment Fund (AIF) rules and avail the facilities available for AIFs to deal with unliquidated investments.

It cleared a scheme for the employees of REITs and InvITs on the lines of ESOPs.

It also gave the nod to increase the upper limit of investment in group companies by passive funds to 35 per cent. 

The Sebi board met for the second time within two months. 

With inputs from agencies