Sebi intervenes to prevent mutual funds from front-running, know more
Sebi has decided not to record in-person conversations, including those that take place outside of the office, unless asset management firms put in place an institutional framework.
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In an effort to create an institutional framework that will prevent front-running and fraudulent trades, the Securities and Exchange Board of India has approved changes to its mutual fund regulations.
The markets watchdog noticed a notable increase in front-running and insider trading operations and released a consultation paper in May of last year.
Sebi barred Viresh Joshi, the former chief dealer of Axis Mutual Fund, and twenty other people from the securities markets in February 2023 after allegations that they had front-ran Axis Mutual Fund trades.
“The mechanism shall 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, misuse of sensitive information, etc,” Sebi mentioned in an official statement on Tuesday.
The Association of Mutual Funds in India (Amfi), a trade association, was tasked by the regulator with establishing comprehensive guidelines for these institutional structures. As of right now, mutual fund schemes are prohibited from investing more than 25% of their net asset value in the group companies of a sponsor.
Consequently, Sebi has accepted changes to let passive equity schemes on particular indices to take exposure up to the weight of the constituents in an underlying index in order to level the playing field.
Additionally, the regulator authorized a framework that will allow non-resident Indians, Indian citizens living abroad, and resident Indians to contribute more to the corpus of certain foreign portfolio investors who are based in International Financial Services Centers in India and are subject to regulation by the International Financial Services Centres Authority.
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