November 25, 2022
Summary of the notification issued by SEBI on 24/11/2022
SEBI amends PIT regulations to govern the trading in Mutual Fund units.
Key highlights of the amendment are as follows:
1. Definition of ‘Securities’ is amended to include the units of a Mutual Fund(MF); earlier it was explicitly omitted.
2. Redemption and Switching of units of MF will be considered as Trading activity and shall be construed as a ‘trade’ under PIT regulations.
3. A new Chapter has been introduced to prescribe the procedure with respect to restrictions on communication in relation to and trading by insider in the units of MF. Summary of critical aspects of the new Chapter are as below:
a. Definition of a ‘connected person’ with respect to a MF, Asset ,Management Company(AMC) and trustees and has also prescribed deemed connected persons, which would cover Board of Directors/KMP of sponsor of the MF; Directors or employees of registrar and share transfer agents, custodians or valuation agencies of MF; an official or an employee of fund accountant providing services to a mutual fund, who have access or are reasonably expected to have access to unpublished price sensitive information(UPSI) relating to a mutual fund scheme or its units in the course of business operations.
b. UPSI shall include any information, pertaining to a scheme of a MF which is not generally available and which upon becoming generally available, is likely to materially impact the Net Asset Value(NAV) or affect the interest of unit holders.
c. Determination of ‘legitimate purposes’: The board of directors of an AMC with the approval of the Trustees shall make a policy for determination of “legitimate purposes”. No person shall procure from or cause the communication by any insider of UPSI, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
d. Trading when in possession of unpublished price sensitive information: No insider shall trade in the units of a scheme of a MF, when in possession of UPSI, which may have a material impact on the NAV of a scheme or may have a material impact on the interest of the unit holders of the scheme. The dealings of a person in the units of a mutual fund when in possession of unpublished price sensitive information, shall be presumed to have been motivated by the knowledge and awareness of such information in his possession, unless proved to the contrary.
e. Disclosures: An AMC shall, on such date as may be specified by the Board and on a quarterly basis thereafter, disclose the details of holdings in the units of its MF schemes, on an aggregated basis, held by the Designated Persons of AMC, trustees and their immediate relatives on the platform of Stock Exchanges or in any other manner as may be specified by the Board.
f. Code of Conduct: The Board of Directors shall formulate a Code of Conduct, adhering to the minimum prescribed standards as set out in the Schedules to this Regulations for Mutual Funds to regulate, monitor and report trading by the Designated Persons in the units of own mutual fund schemes.
g. The Chief Executive Officer / Managing Director of an AMC with the approval of the trustee or such other analogous person of an intermediary or fiduciary, shall put in place adequate and effective system of internal controls to ensure compliance with the requirements given in these regulations to prevent insider trading. The Audit Committee of the AMC or such other analogous body of an intermediary or fiduciary shall review compliance with the provisions of these regulations at least once in a financial year and shall verify that the systems for internal control are adequate and are operating effectively.
h. An AMC shall with the approval of the trustees have a Whistleblower Policy that is brought to the notice of their employees to enable them to report instances of leak of such unpublished price sensitive information.
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