Market regulator SEBI on Friday has proposed to include trading in the units of mutual funds in the ambit of insider trading. At present, the units of mutual funds are explicitly excluded from application of prohibition of insider trading laws. SEBI issued a discussion paper on Friday.
SEBI’s suggestion was mainly prompted by its investigations into the alleged fraud by officials of Franklin Templeton Mutual Fund. “It is being considered to include a separate chapter in PIT Regulations, specifically to cover transactions in the units of mutual fund schemes,” the SEBI paper said.
There was a view that fund officials were slackening in their fiduciary duty. The regulator had banned individuals from Franklin Templeton from the securities market and had imposed a monetary penalty on them in June last year. The AMC and its officials have challenged the regulator’s order.
Harmonising provisions
“A few key personnel of a Mutual Fund were found to have redeemed their holdings in the schemes, while in possession of certain sensitive information not communicated to the unit holders of the schemes,” said SEBI in the discussion paper.
“A need has, therefore, been felt to harmonise the provisions in PIT Regulations to initiate serious enforcement actions against those who misuse the sensitive non-public information pertaining to schemes of Mutual Fund, directly or indirectly, which they have access, by virtue of their fiduciary capacity,” the regulator added.