In a circular issued on 5 August 2024, the Securities and Exchange Board of India (SEBI) has directed asset management companies (AMCs) to implement a structured institutional mechanism aimed at clamping down on various market abuses. The mechanism aims to identify, and prevent market abuse and misconduct such as front-running, insider trading, fraudulent transactions, misuse of sensitive information etc.
The SEBI has outlined the following mandatory requirements:
- The CEO/MD and CCO must be accountable for implementation of the mechanism;
- Enhance\ surveillance systems;
- Implement internal control procedures;
- Implement escalation processes;
- Set timely surveillance alerts;
- Process alerts, including a review of all recorded communication;
- AMCs must maintain entry logs to premises and monitor them;
- Standard operating procedures must detail the examination and penalty for market abuse by employees and connected entities. The AMC’s board of directors must approve these standard procedures;
- Suspension and termination must be included among possible actions for market abuse;
- The AMC must share details of market abuse, action/s taken and conclusions with its board of directors and trustees, and included in the compliance test report and half-yearly trustee report submitted to the SEBI in the prescribed format;
- A documented whistleblower policy; and
- A periodical review and update of the institutional mechanism.
The circular also states that stock exchanges and depositories must develop data-sharing methods for this institutional mechanism. The data will be shared with AMCs and methods will be developed in consultation with the Association of Mutual Funds of India (AMFI). The AMFI will also craft detailed implementation standards for the institutional mechanism, which will be mandatory for all AMCs to adopt.
Amendments have been introduced to the SEBI (Mutual Funds) Regulations, 2024, which allows the changes outlined in the circular to take effect.
