SEBI Issues New Rules to Stop Market Abuse by Asset Management Companies
The Securities and Exchange Board of India (SEBI), the stock market regulator, has issued a new circular aimed at Asset Management Companies (AMCs). This circular is designed to help these companies identify and prevent potential market abuse, such as front-running and fraudulent transactions in securities.
According to SEBI, the circular was issued after extensive consultations with stakeholders, including the Mutual Funds’ Advisory Committee (MFAC). It addresses the growing need for better surveillance in the financial markets.
Key Measures
The circular mandates that AMCs implement a structured mechanism that includes:
- Advanced surveillance systems
- Internal control procedures
- An escalation process to promptly inform their Board of Directors about any instances of potential market abuse
The Chief Executive Officer or Managing Director, along with the Chief Compliance Officer, will be held accountable for the effective implementation of these measures.
Additional Requirements
AMCs are also required to develop alert-based surveillance systems to generate and process alerts in a timely manner. All recorded communications and access logs must be reviewed during investigations. The circular emphasizes the importance of a whistleblower policy and periodic reviews of the procedures and systems in place.
AMCs must report any examined alerts to SEBI, detailing the observations made and actions taken. This comprehensive approach aims to foster a transparent and secure environment for investors, thereby promoting the integrity of the securities market.
SEBI stated, “AMCs shall take suitable action upon becoming aware of any potential market abuse by its employees or brokers/dealers, including suspension or termination of such persons/entities.”
By mandating these regulations, SEBI aims to protect investors’ interests and enhance the overall regulatory framework governing mutual funds in India.
Doubts Revealed
SEBI -: SEBI stands for the Securities and Exchange Board of India. It is a government agency that regulates the stock market and protects investors in India.
Asset Management Companies -: Asset Management Companies, or AMCs, are firms that manage money for people by investing in stocks, bonds, and other assets to help them grow their wealth.
market abuse -: Market abuse refers to unfair practices like cheating or manipulating the stock market to make illegal profits.
front-running -: Front-running is when someone uses secret information about a big trade to make their own trades first and profit unfairly.
fraudulent transactions -: Fraudulent transactions are fake or dishonest deals made to cheat people out of their money.
circular -: A circular is an official document or notice sent to many people to inform them about new rules or important information.
surveillance systems -: Surveillance systems are tools and technologies used to monitor activities and detect any suspicious or illegal actions.
internal controls -: Internal controls are rules and procedures within a company to ensure everything is done correctly and honestly.
Board of Directors -: The Board of Directors is a group of people chosen to make important decisions and oversee the activities of a company.
CEOs -: CEOs, or Chief Executive Officers, are the top leaders in a company responsible for making major decisions and managing the overall operations.
Chief Compliance Officers -: Chief Compliance Officers are responsible for making sure a company follows all laws and regulations.
whistleblower policy -: A whistleblower policy is a set of rules that protect people who report illegal or unethical activities within a company.
periodic reviews -: Periodic reviews are regular checks to make sure everything is working as it should and to find any problems that need fixing.