AMFI to soon unveil guidelines to curb front-running and insider trading in mutual fund houses

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Association of Mutual Funds in India (AMFI) will introduce a standardised operating procedure (SOP) for asset management companies (AMCs) within a month. This will be in order to curb potential market abuse, including front-running and insider trading, AMFI Chief Executive Venkat Chalasani said while making the monthly mutual fund data announcement.

This decision follows a directive from the Securities and Exchange Board of India (SEBI) on April 30, urging AMCs to establish a structured institutional mechanism for identifying and deterring market abuse.

SEBI will outline broad guidelines, with AMFI tasked to develop specific standards.

The regulator aims to enhance surveillance and internal control procedures within AMCs to detect misconduct and prevent misuse of sensitive information.

Additionally, SEBI plans to increase accountability among AMC management for any instances of misconduct.

To ensure transparency and accountability, AMCs will be required to implement a whistle-blower mechanism. This mechanism is intended to encourage employees to report any suspicious activities without fear of reprisal.

The need for such measures became apparent following instances where mutual fund employees were implicated in front-running trades for personal gain.

In response, SEBI imposed stricter norms on MF staff and fund managers. At present, AMC employees must document all face-to-face communications during market hours, including those that occur outside the office.

However, SEBI may grant exemptions to these requirements once the institutional mechanism is in place.

Previously, SEBI had brought mutual fund units under its prohibition of insider trading regulations to prevent employees and key staff from engaging in dealings based on unpublished price-sensitive information (UPSI).

Certain cases revealed key personnel redeeming their holdings in schemes before information was shared with other unit holders, prompting regulatory action.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow