SEBI takes action on front running, insider trading, AMC head also responsible – ..

Ahmedabad Six Market regulator SEBI has made extensive changes in the rules to curb front running and insider trading in mutual funds. Under this, asset management companies will have to establish institutional mechanisms and manage it responsibly. Apart from this, the market regulator has also directed the asset management company to establish a ‘whistle-blower’ system. SEBI’s decision comes after passing two orders in connection with ‘major ongoing’ cases involving Axis AMC and Life Insurance Corporation of India (LIC).
SEBI said, ‘Asset management companies should establish institutional mechanisms as specified by the Board to identify and prevent potential market abuse, including ‘front-running’ and insider trading in securities.’
Most importantly, the Chief Executive Officer (CEO) or Managing Director of SEBI or any other person of equivalent rank and the Chief Compliance Officer of the asset management company will be responsible for the implementation of the institutional mechanism and will be held accountable if any fraud takes place. Simply put, SEBI’s order will make the top executives of mutual fund companies liable for any front running or insider trading fraud under the new rules.
Asset management companies have been ordered to establish and implement a ‘whistle-blower’ policy, which will enable employees, directors, trustees and other stakeholders to report suspected fraud, improper or unethical behaviour, violations of regulatory or legal requirements or professional misconduct.’
SEBI said that a confidential mechanism will also have to be established to ensure adequate protection of whistleblowers. According to August 1 Gadgets, all these changes will be effective from November 1.