SEBI to tighten norms to deter front running at AMCs

The SEBI board on Tuesday approved measures to deter front-running at asset management companies.

This will be through an institutional mechanism that will 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, and misuse of sensitive information.

SEBI has also allowed for increased contributions by non-resident Indians, overseas citizens of India, and resident Indian individuals in the corpus of certain FPIs based out of GIFT IFSC, subject to conditions. At present, NRIs and OCIs can contribute a maximum of 49 per cent in an FPI.

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Foreign funds set up at GIFT IFSC can have 100 per cent contribution from NRIs, OCIs, and resident Indians, subject to the FPI submitting copies of investors’ PAN along with their economic interest in the FPI or a declaration along with documents such as passports and OCI cards.

“This move will unlock the hitherto untapped potential of the diaspora capital, open up a completely new stream of funds and in the process provide a fillip to the asset management industry in GIFT City,” Vivek Mimani, Partner, Khaitan & Co, said.

The only slight dampener to this would be the absence of a reasonable time window for FPIs to comply with the 20-25 test of broad basing requirements, which in its current form may pose operational challenges to fund managers in timing their fund raising and deployments, he added.

VENTURE NORMS FOR VCS

Venture capital funds have been allowed to migrate to AIF regulations and avail the facilities available for AIFs to deal with unliquidated investments. Migrated VCFs can avail of the flexibilities under AIF Regulations with respect to extension of tenure, liquidation period, and dissolution period to deal with unliquidated investments.

Equity passive schemes have been allowed to invest up to 35 per cent of their net asset value in the group companies of the sponsor. The cap is 25 per cent for non-passive schemes. The Board has exempted fund managers and dealers from the requirement of recording face-to-face communication, including out-of-office interactions, during market hours.

The board has allowed the investment manager of InvITs/REITs to receive units in lieu of management fees for the purpose of providing unit-based employee benefits.

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