MUMBAI: The market regulator SEBI has amended the rules governing mutual funds to curb front-running, insider trading and towards this has directed fund houses to to have a whistle-blower mechanism, making the AMC managements responsible for ensuring the effectiveness of an institutional mechanism to identify and deter front-running and insider trading in securities.
The changes has come in the wake of the Securities and Exchange Board (Sebi) passing two orders regarding front-running cases involving Axis AMC and Life Insurance Corporation of India (LIC) recently. To give these effects, the SEBI has amended mutual fund rules, which will come into force from November 1.
In a gazette notification, SEBI said, “asset management companies (AMCs) shall put in place an institutional mechanism, as may be specified by their boards, for the identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities”.
“An AMC shall establish, implement and maintain a documented whistle-blower policy that shall provide for a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability, and establish procedures to ensure adequate protection of the whistleblowers,” the SEBI said.
Front-running is an illegal practice, wherein an entity engages in trading based on advanced information from a broker or analyst before the information has been made available to clients.
According to the latest notification, the chief executives or managing directors or such other person of equivalent or analogous rank and chief compliance officers of AMCs will be responsible and accountable for the implementation of such an institutional mechanism.