SEBI has banned Mutual Funds A big step has been taken in favor of investors. SEBI on Tuesday took steps to curb ‘front-running’ and insider trading in mutual funds. Under this, the SEBI Board of Directors decided that asset management companies (AMCs) will have to create an institutional system for identification and redressal of potential market abuses. Along with this, the Board of Directors has called for such an institutional mechanism. According to a statement issued by SEBI after the meeting of the Board of Directors, the regulator wants AMC to promote transparency by creating a ‘whistle blower’ mechanism to raise voice against mistakes. Market experts say that this step of SEBI will protect the rights of investors. Their money will be safe.
What is ‘front running’?
According to SEBI, the Institutional System will work to detect and report possible irregularities by AMC employees, dealers, stock brokers or any other related entities. This will include advanced monitoring systems, internal control procedures and escalation processes to identify, monitor and address specific types of irregularities. AMC-related malpractices include front running, insider trading and misuse of sensitive information. When a broker or investor gets involved in a business based on confidential information, it is called ‘front running’. This is such sensitive information, which affects the share price.
The decision came after these two cases
The decision comes amid orders issued by SEBI in two ‘front-running’ cases related to Axis AMC and Life Insurance Corporation of India (LIC). In the Axis AMC case, broker-dealers, certain employees and related entities were found to be engaged in ‘front-running’ the businesses of the AMC. In the LIC case, an employee of a listed insurance company was found to be ‘front-running’ the deals. “In view of the recent developments, the Board of Directors has recommended amendments to the SEBI (Mutual Funds) Regulations, 1996 to enable AMCs to put in place a systematic institutional mechanism to identify and prevent potential market abuses,” the regulator said in a statement. Approved.
AMFI will prepare a roadmap
Mutual fund body ‘Association of Mutual Funds in India’ (Amfi) will lay down detailed standards for such institutional mechanisms in consultation with SEBI. Additionally, the regulator has streamlined the prudential norms for passive schemes in respect of securities of the sponsor’s group companies to provide a level playing field for mutual funds. At present, mutual fund schemes are not allowed to invest more than 25 per cent of their net asset value (NAV) in group companies of the sponsor.
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