SEBI tightens grip to combat market abuse in mutual fund, including front-running and fraudulent transactions
Aug 6, 2024, 08:27 IST
New Delhi [India], August 6 (ANI): The Securities and Exchange Board of India (SEBI), the stock market regulator, has issued a circular aimed for the Asset Management Companies (AMCs). The circular aims to help the companies to identify and deter potential market abuse, including front-running and fraudulent transactions in securities.
According to SEBI, the circular issued on Monday follows extensive consultations with stakeholders, including the Mutual Funds' Advisory Committee (MFAC), and is a response to the growing need for enhanced surveillance in the financial markets.
The circular mandates that AMCs implement a structured mechanism that includes advanced surveillance systems, internal control procedures, and an escalation process to promptly inform their Board of Directors about any instances of potential market abuse.
"AMCs shall put in place an institutional mechanism for identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities," the circular added.
According to the circular, the Chief Executive Officer or Managing Director, along with the Chief Compliance Officer, will be held accountable for the effective implementation of these measures.
Furthermore, AMCs are required to develop alert-based surveillance systems to generate and process alerts in a timely manner, ensuring that all recorded communications and access logs are reviewed during investigations.
In addition to these measures, the circular emphasises the importance of a whistleblower policy and periodic reviews of the procedures and systems in place. AMCs must also report any examined alerts to SEBI, detailing the observations made and actions taken. This comprehensive approach aims to foster a transparent and secure environment for investors, thereby promoting the integrity of the securities market.
"AMCs shall take suitable action upon becoming aware of any potential market abuse by its employees or brokers/dealers, including suspension or termination of such persons/entities," the circular stated.
According to SEBI, mandating these regulations, it aims to protect investors' interests and enhance the overall regulatory framework governing mutual funds in India.
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According to SEBI, the circular issued on Monday follows extensive consultations with stakeholders, including the Mutual Funds' Advisory Committee (MFAC), and is a response to the growing need for enhanced surveillance in the financial markets.
The circular mandates that AMCs implement a structured mechanism that includes advanced surveillance systems, internal control procedures, and an escalation process to promptly inform their Board of Directors about any instances of potential market abuse.
"AMCs shall put in place an institutional mechanism for identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities," the circular added.
According to the circular, the Chief Executive Officer or Managing Director, along with the Chief Compliance Officer, will be held accountable for the effective implementation of these measures.
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In addition to these measures, the circular emphasises the importance of a whistleblower policy and periodic reviews of the procedures and systems in place. AMCs must also report any examined alerts to SEBI, detailing the observations made and actions taken. This comprehensive approach aims to foster a transparent and secure environment for investors, thereby promoting the integrity of the securities market.
"AMCs shall take suitable action upon becoming aware of any potential market abuse by its employees or brokers/dealers, including suspension or termination of such persons/entities," the circular stated.
According to SEBI, mandating these regulations, it aims to protect investors' interests and enhance the overall regulatory framework governing mutual funds in India.