On October 22, 2024, the Securities and Exchange Board of India (SEBI) issued a circular to enhance the regulatory framework regarding insider trading in mutual fund units. Following an amendment notified on November 24, 2022, mutual fund units will be included under the SEBI (Prohibition of Insider Trading) Regulations, 2015, with implementation starting on November 1, 2024. To facilitate this, a working group provided recommendations that led to several decisions, including mandatory quarterly disclosures by Asset Management Companies (AMCs) of holdings by designated persons and trustees, starting with data as of October 31, 2024. Additionally, transactions involving mutual fund units exceeding INR 15 lakhs must be reported to the AMC’s Compliance Officer within two business days. The circular also modifies existing guidelines to ensure that the insider trading regulations take precedence over previous investment restrictions for AMCs and their employees.
Securities and Exchange Board of India
Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/144 Dated: October 22, 2024
To All,
Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)/
Stock Exchanges
Depositories
Registrars to an Issue and Share Transfer Agent (RTAs)
Madam/ Sir,
Sub: Inclusion of Mutual Fund units in the SEBI (Prohibition of Insider Trading) Regulations, 2015
1. In order to strengthen the regulatory framework in relation to prohibition of insider trading in units of mutual funds, vide notification dated November 24, 2022 (link), mutual funds units were included under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as ‘PIT Regulations’). The amendments notified through the notification dated November 24, 2022 shall be applicable from November 01, 2024 (link to the Gazette notification).
2. In order to streamline the implementation of the above-mentioned amendments, a working group consisting of representatives from AMCs, AMFI, Stock Exchanges, RTAs and Depositories was constituted which provided its recommendations on implementation of the abovementioned amendments. After considering the recommendations of the working group, the following has been decided:
2.1. In terms of Regulation 5(E)(1) of PIT Regulations, AMCs shall disclose the details of the holdings of Designated Persons of AMCs, trustees and their immediate relatives on aggregate basis from November 1, 2024 on quarterly basis. The holdings as on October 31, 2024 shall be disclosed on the platform of the Stock Exchanges by November 15, 2024. Thereafter, for all subsequent calendar quarters AMCs shall provide the information within 10 calendar days from the end of the quarter. Further, the holdings shall be disclosed in the format specified at Annexure A.
2.2. In terms of Regulation 5(E)(2) of PIT Regulations, details of all the transactions in the units of its own mutual funds, above the threshold amount which aggregates to a value in excess of INR 15 Lakhs, in one transaction or a series of transactions over any calendar quarter, per PAN across all schemes excluding the exempted schemes, executed by the Designated Persons of asset management company, trustees and their immediate relatives shall be reported by the concerned person to the Compliance Officer of AMC within two business days from the date of transaction.
2.3. In terms of Regulation 5(E)(3) and 5(E)(4) of PIT Regulations, the transactions reported under Regulation 5(E)(2) of PIT Regulations shall be disclosed in the format specified at Annexure B.
2.4. In terms of Clause 12 of Schedule B1 and Clause 11A of Schedule C of PIT Regulations, the observed violations of PIT Regulations shall be disclosed in the format specified at Annexure C.
3. Further, in order to harmonize the framework of investment/trading restriction in securities by employees of the AMCs and Trustees prescribed under Clause 6.6 of Master Circular for Mutual Funds dated June 27, 2024 (‘Master Circular’) with the amended PIT Regulations, the Clause 6.6 of Master Circular is modified as under:
3.1. Clause 6.6 of the Master Circular shall not be applicable for investments and redemption of mutual fund units. For mutual funds units, Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time, shall be followed strictly by the Trustees, Asset Management Companies and their employees and directors.
3.2. Clause 6.6.2.1 (a) of the Master Circular stands modified as under:
“These Guidelines cover transactions for purchase or sale of any securities such as shares, debentures, bonds, warrants, derivatives.”
3.3. The following is inserted as Clause 6.6.2.1 (b)(4) in the Master Circular:
“Investments in units of schemes floated by mutual funds /AMCs where the concerned persons (in terms of the applicability stated at 6.6.1.1.a above) are employed.”
3.4. Clause 6.6.2.3(f) of the Master Circular stands modified as under:
“All employees shall refrain from profiting from the purchase and sale or sale and purchase of any security within a period of 30 calendar days from the date of their personal transaction. However, in cases where it is done, the employee shall provide a suitable explanation to the Compliance Officer, which shall be reported to the Board of the AMC and the Trustees at the time of review.”
3.5. Clause 6.6.4 of the Master Circular stands deleted.
4. The Circular shall be applicable from November 1, 2024.
5. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 5(E), 5(F)(1) and 5(F)(2) of PIT Regulations, to protect the interest of investors in securities and to promote the development of, and to regulate the securities market.
6. This circular is available at sebi.gov.in under the link “Legal ->Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
+91-22-26449233
[email protected]