Capital markets regulator SEBI has issued fresh guidelines pertaining to investment norms for the workforce, trustees and board members of mutual fund and asset management companies (AMCs). The guidelines include the creation of a new category of ‘access persons’ for which these rules apply.
Accordingly, SEBI has imposed curbs on trading by the staff, trustees and AMC board members to purchase or sell units in their own mutual fund schemes wherein the employee may have information that has not been shared with unit holders of the scheme. According to a SEBI circular issued on October 28, any such information could potentially impact the net asset value (NAV) of the fund or the unit holder interest.
‘Access persons’ category
The category that SEBI has formulated for access persons include members of the C-suite, such as executive directors, chief operation officer, chief risk officers or chief investment officers, apart from dealers, research analysts or fund managers, among others. Even non-executive directors of the AMC or other trustees/trustee firms would also be considered as access persons, according to SEBI.
The market regulator’s previous guidelines were not applicable to investments that were made by employees in G-secs, liquid schemes, money market mutual fund schemes or schemes that were introduced by other mutual funds. However, as per the fresh guidelines from SEBI investments that are not under the ambit of the guidelines will be in G-secs, schemes of other mutual funds and overnight schemes.
As per the circular, although access persons or employees don’t need any clearance of the Compliance Officer for buying or selling of units in mutual fund schemes, the details of these transactions, barring those in overnight schemes, would have to be brought to the notice fo the officer within seven days of said transaction. The access persons are also required to self-declare that they are not directly or indirectly engaged in trading while being privy to sensitive information that could impact securities price or sale of any pledged securities.
Cooling off period norms
Further, as per the guidelines, employees cannot profit from the sale or buying of any security within 30 days of investing in them. In cases where employees have benefited from such a sale, an appropriate explanation would have to be provided to the compliance officer, said SEBI. However, this may not be made applicable where investments or redemptions have been made in accordance with the SEBI principle of aligning the interest of key AMC employees with unitholders of mutual fund schemes.
The SEBI rule that aims for such an alignment was brought into effect from October 1, 2021. According to this SEBI mandate, key employees of AMCs would compulsorily have to invest a minimum of 20 per cent of their salaries/bonuses/perks or other compensations including non-cash and even contributions such as PF or NPS, in mutual fund units wherein they have a role or oversight. This has come to be known as the ‘skin-in-the-game’ rule.
When it comes to investments made by access persons in the secondary markets, SEBI has, as per its circular, relaxed the 15-day cooling off timeframe. The relaxations, it says, can be provided by the compliance officer twice in a financial year. Also, the relaxations can be applied only to the sale of securities that have been held by the access person for at least a year, according to the circular. Also, the compliance officer would decide on the relaxation within five days of receiving an application. Also, the employee/access person would be allowed to sell a security within ten trading days from the time of getting the nod from the compliance officer.
The new norms that SEBI has issued will be implemented from December 1, 2021. However, the norms pertaining to the curbs on access persons profiting from the buying or selling of any security within 30 days will be implemented with effect from October 28, 2021.
Both the ‘skin-in-the-game’ and the fresh guidelines issued by SEBI are aimed at bringing in greater accountability and transparency when it comes to mutual fund investments. Experts also note that the moves are aimed at instilling confidence among unit holders as employees of AMCs are made more accountable.
Capital markets regulator SEBI has modified rules for investments and trading taken up by employees, trustees and board members of mutual fund asset management companies, and widened the scope of ‘access persons’ of such AMCs for whom these altered guidelines apply.
Who are access persons of AMCs, according to SEBI?
Earlier, access persons referred to C-suite members such as chief executive officers, chief risk officer, research analysts, fund managers or dealers. However, SEBI has now mandated that non-executive directors of AMCs/trustee companies and trustees are also access persons.
What is an asset management company (AMC)?
An asset management company is one that invests its clients’ pooled funds in securities or different asset classes on behalf of the clients.
When do SEBI’s new guidelines for AMC/MF staff come into effect?
The SEBI guidelines for staff of mutual funds/asset management companies come into effect from December 1, 2021. The guidelines that refrain employees from profiting from sale or purchase of any security within 30 days comes into effect from October 28, 2021.