Sebi's intervention aims to curb front-running and fraudulent practices in mutual funds

In a major step to enhance investor protection, Sebi on Tuesday decided to amend the regulatory framework by requiring Asset Management Companies AMCs to put in place an institutional mechanism to curb front-running and fraudulent transactions in mutual funds.The decision was taken in the Sebis 205th board meeting.

In a major step to enhance investor protection, Sebi on Tuesday decided to amend the regulatory framework by requiring Asset Management Companies (AMCs) to put in place an ''institutional mechanism'' to curb front-running and fraudulent transactions in mutual funds.

The decision was taken in the Sebi's 205th board meeting. This is the second board meeting after March 15.

Apart from institutional mechanisms, the regulator approved the streamlining of prudential rules for passive mutual fund schemes about exposure to the securities of group companies.

In its statement after the conclusion of the board meeting, Sebi said it has allowed equity passive schemes to take exposure up to the weightage of the constituents in the underlying index. This will be applicable for indices specified by the Sebi and subject to an overall cap of 35 per cent investment in the group companies of the sponsor.

In addition to mutual funds, Sebi has stepped in to increase the participation of retail investors in the bond market with the reduction in the face value of debt securities and non-convertible redeemable preference shares to Rs 10,000 from Rs 1 lakh at present.

Also, it modified Sebi (Issue and Listing of Non-Convertible Securities) norms relating to disclosure of financial results in the offer documents, record date, and due-diligence certificate, and provided flexibility to venture capital funds and addressed issues faced by them regarding unliquidated investments.

Further, Sebi has approved a regulatory framework to enable increased contributions by non-resident Indians (NRIs), overseas citizens of India (OCI) and resident Indians (RIs) in the corpus of certain foreign portfolio investors (FPIs) based out of IFSCs in India.

Moreover, Sebi has decided to introduce a framework for unit-based employee benefits (UBEB) in the context of REITs and InvITs.

With regard to institutional mechanisms, Sebi said such mechanisms should consist of enhanced surveillance systems, internal control procedures, and escalation processes to identify, monitor and address specific types of misconduct, including front running, insider trading, and misuse of sensitive information, among others.

''Considering the recent front-running instances observed by Sebi, the board approved amendments to Sebi (Mutual Funds) Regulations, 1996, for enhancing the existing regulatory framework by requiring AMCs to put in place a structured institutional mechanism for identification and deterrence of potential market abuse, including front-running and fraudulent transactions in securities,'' the regulator said.

This comes in the wake of Sebi passing orders in two instances of front-running pertaining to Axis AMC and Life Insurance Corporation of India (LIC).

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)