SEBI Issues New Circular to Curb Market Abuse by AMCs

The Securities and Exchange Board of India (SEBI) has issued a circular directing Asset Management Companies (AMCs) to identify and deter market abuse, including front-running and fraudulent transactions, through advanced surveillance systems and strict compliance measures.

The Securities and Exchange Board of India (SEBI), the stock market regulator, has issued a new circular aimed at tightening controls over Asset Management Companies (AMCs). The directive focuses on identifying and preventing potential market abuse, such as front-running and fraudulent transactions.

According to SEBI, the circular, which was issued on Monday, is the result of extensive consultations with stakeholders including the Mutual Funds' Advisory Committee (MFAC). It mandates that AMCs implement a structured mechanism featuring advanced surveillance systems, internal control procedures, and an escalation process to promptly report any potential market abuse to their Board of Directors.

The circular specifies that the Chief Executive Officer or Managing Director, along with the Chief Compliance Officer, will be accountable for the effective implementation of these measures. AMCs are also required to develop alert-based surveillance systems to generate timely alerts, ensuring that all recorded communications and access logs are reviewed during investigations. Additional requirements include having a robust whistleblower policy and conducting periodic reviews of the procedures in place. AMCs must report any investigated alerts to SEBI, detailing their observations and actions taken to foster a transparent and secure environment for investors.

The circular also calls for prompt action by AMCs upon discovering any potential market abuse by their employees or associated brokers/dealers, which could include suspension or termination. SEBI stated that these measures aim to protect investors' interests and enhance the regulatory framework for mutual funds in India.