Starting November 1, 2024, the Securities and Exchange Board of India (SEBI) will implement regulatory changes affecting mutual funds and the application process for debt securities. These amendments aim to enhance transparency, protect investors, and streamline processes within the financial markets.
New regulations for mutual funds
Under the new rules, mutual funds will now be governed by SEBI’s Prohibition of Insider Trading (PIT) regulations.
This change prohibits senior employees of asset management companies (AMCs) from selling their mutual fund holdings when they possess confidential information about potential issues affecting their firm or its schemes.
This measure seeks to address concerns over fund managers who may have previously sold units before market declines, putting investors at risk.
SEBI has broadened the scope of insider trading norms to include a variety of “connected persons.”
This group encompasses not only mutual fund officials but also board members, sponsors, trustees, auditors, legal advisors, bankers, and consultants.
By restricting trading activities of these individuals, SEBI aims to prevent insider trading and protect investor interests more effectively.
Institutional mechanisms for AMCs
SEBI has mandated that AMCs establish robust mechanisms to identify and deter front-running and insider trading in securities.
Front-running refers to the illegal practice of trading based on advanced, non-public information.
The responsibility for implementing these mechanisms lies with the management of AMCs, including the Chief Executive Officer (CEO), Managing Director (MD), and Chief Compliance Officer. They must ensure that their firms adhere to these new standards and maintain accountability.
Whistle-blower protection
Additionally, SEBI has introduced a whistle-blower policy for AMCs, allowing employees and stakeholders to report suspected unethical practices confidentially.
Implications for investors
By enforcing strict measures against insider trading and front-running, SEBI aims to build a safer investment environment.
Investors can feel more secure knowing their investments are managed ethically and in compliance with regulatory standards.
Simplifying debt securities applications
In addition to mutual fund regulations, SEBI is also simplifying the process for applying for public issues of debt securities.
Starting November 1, individual investors applying through intermediaries for amounts up to ₹5 lakh will be required to use the Unified Payments Interface (UPI) for fund blocking.
Under the new rules, investors must provide their UPI ID linked to their bank account in the bid-cum-application form submitted to intermediaries, such as stock brokers or registrars.
This requirement will streamline transactions and potentially attract more retail investors into the debt segment.
Faster fund access for issuers
SEBI has also reduced the minimum subscription period for public issues of debt securities from three to two working days. In cases of price band or yield revisions, the bidding period can now be extended by only one working day instead of three.
Additionally, the time allowed for public comments on draft offer documents has been shortened to one day for already-listed securities and five days for others.
Impact on the debt market
According to Makarand M Joshi, Founder of MMJC and Associates, “Mandating UPI for bids up to ₹5 lakh will ease the process and draw more retail investors into the debt segment.
Content retrieved from: https://www.cnbctv18.com/personal-finance/sebi-new-rules-novemebr-1-mutual-funds-insider-trading-debt-securities-upi-investors-changes-19502064.htm.
