Mutual Fund units now under the net of insider trading regulations
Numerous actionable for Asset Management Companies
– Vinita Nair, Senior Partner | corplaw@vinodkothari.com
Background
Investment in MFs are very common these days. As on March 31, 2022 there were about 1120 open ended schemes and 354 close ended schemes[1]. Presently, in terms of Reg. 32 of SEBI (Mutual Funds) Regulations, 1996 every close ended scheme, other than equity linked savings scheme, are required to be listed on stock exchanges.
Until, the present amendment, SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) were applicable in case of dealing in securities that are listed or proposed to be listed while in possession of Unpublished Price Sensitive Information (‘UPSI’). Units of mutual funds were excluded from the definition of securities under PIT Regulations and therefore, remained outside the purview of the said regulations.
The erstwhile PIT Regulations of 1992 was amended in 2002 to mandate Asset management Companies (AMCs) and Mutual Fund (‘MF’) Trustees to frame internal procedures and conduct for prevention of insider trading, pursuant to which any security which was purchased or sold or was considered for purchase or sale by the organization on behalf of its clients/ schemes of MFs was required to be put on the restricted/ grey list. Thereafter, at the time of finalization of PIT Regulations, the committee led by Mr. N. K. Sodhi felt that there is no longer a special need for a special or separate circular for a specific class of market intermediaries and therefore, the said circulars be withdrawn to ensure consistency. The definition of securities in the proposed draft of PIT Regulations forming part of the said report provided for the meaning assigned to it under the Securities Contract (Regulation) Act, 1956 (‘SCRA’) without any exclusion. It was also explained that an MF set up as a trust, that can issue units of close-ended schemes which are traded in the market would also be a ‘company’ for purposes of the proposed regulations. However, the PIT Regulations as approved by SEBI in its meeting held on November 19, 2014 excluded MF units from the definition of securities. The thought process, as indicated in a news piece, was that even if a person has inside information regarding one company, he cannot possibly take advantage on that information by investing in a scheme, which is a diversified pool of securities of various companies and that there existed strict and transparent norms of NAV (net asset value) calculations and offence of front-running was already covered under SEBI (Fraudulent and Unfair Trade Practices) Regulations, 2003.
Scope of SEBI Circular issued for employees of AMCs and MF Trustees
SEBI continued to regulate by way of issue of circulars for ‘Investment/ trading in securities by employees and Board members of AMC(s) and Trustees of Mutual Funds’, last compiled circular being issued on October 28, 2021. The guidelines are applicable to all employees of AMCs and MF Trustees and cover sale or purchase of securities made in the name of employees, either individually or jointly, or in the name of spouse or as member of HUF or in the name of immediate relatives[2], of any securities such as shares, debentures, bonds, warrants, derivatives and units of schemes floated by MFs / AMCs where the concerned persons are employed. The purpose of the guidelines is to ensure that employees and Board members of AMC, Board of MF Trustees, including Access Persons[3] are not be able to take undue advantage of any sensitive information that may have about any company or its securities or about the AMC’s schemes or its units.
However, the circular only provided for prohibition in dealing while in possession of UPSI and disclosure requirements, and did not provide the entire framework to be followed with respect to communication, sharing, controls, internal reporting etc. This article discusses how the present amendment make all of these applicable on the AMCs and further actionable, in this regard. Detailed comparison of the amendments made with corresponding requirements under SEBI Circular is provided in Annexure A.
Present Amendment
SEBI notified SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2022 (‘Amendment Regulations’) on November 24, 2022 in order to bring into effect the changes that were earlier proposed in a consultation paper dated July 8, 2022, based on past instances of redemption of MF units by RTAs and KMP of an MF based on inside information that was not made generally available to all unit holders. While the intent is to harmonize the provisions of PIT Regulations, SEBI has considered the fact that though a person may possess an UPSI pertaining to a security, he may not have the knowledge of the existing portfolio of the MF scheme or have any control over the fund manager’s decision.
Therefore, the amendment is by way of insertion of a separate chapter specifically to cover transactions in the units of MF schemes, both close ended and open ended, so as to avoid complexities and such unintended consequences. Additionally, Chapter IIIA and Chapter V dealing with SEBI Informant mechanism and miscellaneous provisions respectively are also applicable in case of transactions in units of MF schemes. The meaning of UPSI and Designated Persons have been framed in accordance with the SEBI Circular.
Applicability
To AMCs and MF Trustees with respect to the MF schemes, whether open-ended or close-ended.
Effective Date
The present amendment is not immediately effective and will come into force on such date as SEBI may by notification in the Official Gazette, appoint.
Actionable arising out of present amendment for AMCs
As discussed above, the requirement under the SEBI Circular was very specific to not trading while in possession of UPSI, however, under the PIT Regulations there is a need for laying the systems and controls and periodically confirming the adequacy and effectiveness before the Audit Committee.
Policy for determination of ‘legitimate purposes’ [Reg. 5C (3)]
It is now the responsibility of the board of directors of the asset management company to frame a policy for determination of legitimate purpose, as that is the basis of communication of UPSI by insiders. The policy needs to be framed with the approval of the Trustees.
Notice of confidentiality upon sharing of UPSI [Reg. 5C (4) & (5)]
The board of the AMC is further required to ensure that parties execute NDAs and the recipient of UPSI is explained about the obligations arising therefrom, including abstaining from dealing in the MF units when in possession of UPSI.
Maintenance of Structured Digital Database (SDD) [Reg. 5C (6) & (7)]
The board of the AMC is further required to ensure maintenance of SDD and making of an entry in the same each time there is an instance of sharing of UPSI, relating to every scheme, internally or externally[4]. The SDD, maintained internally by the AMC, should have a feature of audit trail, time-stamping and preservability for 8 years.
This would demand framing of SOPs for ensuring controls on manner of determination of UPSI, information flow for sharing of UPSI, manner and timelines for making entry in SDD, back-up requirement, other controls to be ensured etc.
Framing Code of Conduct as per Schedule B1 [Reg. 5F (1)]
The AMC has to ensure that the Code of Conduct framed earlier in accordance with the SEBI Circular is aligned with the requirements stipulated under Schedule B1 and PIT Regulations. This includes having a process on manner of bringing people inside.
Disclosures to be made on the stock exchange or SEBI prescribed platform [Reg. 5E (1) & (2)]
The AMC is required to make one-time, quarterly and threshold specific disclosures in the manner specified by SEBI.
Identification of Designated Persons [Reg. 5G (1)]
While the AMCs must have identified the Access Persons, in terms of SEBI Circular, subsequent to notification of the amendment, the Board of the AMC should determine the Designated Persons in consultation with the compliance officer.
Setting up institutional mechanism for internal controls [Reg. 5H(1)]
The CEO/MD of the AMC, with the approval of the Trustee, is required to put in place adequate and effective system of internal controls. The controls are quite elaborate, covering various aspects of PIT Regulations, right from UPSI identification till making in generally available. The Board of the AMC has to ensure that the CEO/MD ensures the same.
Annual affirmation before the Audit Committee (AC) [Reg. 5H(3)]
Details of compliance with PIT Regulations is required to be placed before the AC, atleast once in a year. The AC is required to verify that the systems for internal control are adequate and are operating effectively.
Framing policy to deal with leak of UPSI [Reg. 5H (4)]
The AMC, with the approval of the trustee, is required to formulate written policies and procedures for inquiry in case of leak of UPSI or suspected leak of UPSI.
Framing whistle blower policy [Reg. 5H(5)]
The AMC, with the approval of the trustee, is required to have a whistle blower policy, to enable employees to report instances of leak of UPSI.
Ensuring Closure Period, setting up systems for pre-clearance, monitoring, others [Schedule B1]
The AMC will have to, through the compliance officer, ensure following w.r.t. the DPs:
- Submission of reports to the chairman of AC of AMC and Trustee, atleast annually;
- Determining closure period during which the DP is expected to be in possession of UPSI;
- Determining pre-clearance threshold limits, separate for systematic transactions and lumpsum payments, as determined by Board of AMC;
- Monitoring the trades to track contra trade violations;
- Stipulate formats for pre-clearance, reporting trades etc.
- Obtaining disclosures from the DPs.
- Informing SEBI about any cases of violations;
Actionable arising out of present amendment for Fiduciaries/ intermediaries
- Maintenance of Structured Digital Database (SDD) [Reg. 5C (6) & (7)]
- Framing Code of Conduct as per Schedule C [Reg. 5F (2)]
- Identifying Designated Persons (DPs) [Reg. 5G (2)]
- Setting up institutional mechanism for internal controls [Reg. 5H(1)]
- Annual affirmation before the AC or analogous body[Reg. 5H(3)]
- Setting up systems for pre-clearance, maintenance of restricted list, contra trade restrictions, stipulate formats for pre-clearance, reporting trades etc, obtaining disclosures from the DPs, Informing SEBI about any cases of violations [Schedule C]
Concluding remarks
While, the PIT Regulations mainly apply to listed securities or proposed to be listed, the present amendment is applicable to all units of mutual funds, listed or unlisted, given the involvement of retail investors/ public participation in such MF schemes. While, it is not clear if it will act as a deterrent for investment by the employees in own MF schemes, but it will certainly increase the compliance burden of the AMCs.
Annexure A: Comparison of SEBI Circular with the Amendment Regulations
| Requirement under SEBI Circular | Requirement under Amendment Regulations |
| Applicability | |
| The circular is applicable to employees of AMC(s) and Trustees. However, intent is to ensure that following persons do not take undue benefit of any sensitive information that they may have about any company or its securities or about the AMC’s schemes or its units: Employees of AMCs;Board members of AMC(s);Board members of Trustees;Access Person. Access Person shall mean the Head of the AMC (designated as CEO/Managing Director/President or by any other name), Executive Directors, Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees. Non-Executive Directors of the AMC/trustee company or trustees who are in possession of / have access to any non-public information which could materially impact the price of the securities, NAV of the schemes or interest of the unitholders shall also be deemed as Access Persons. | Applicable to trading by insiders in units of mutual fund schemes. Insider means a connected person or any person in possession of UPSI pertaining to a scheme. Designated Person has been explained in line with the meaning of Access Person under SEBI Circular and is required to be identified by the Board of AMC/ Trustees in consultation with the compliance officer. The provisions are also applicable to persons who are required to handle UPSI relating to the mutual fund scheme or its units in the course of business operations. |
| Investments covered | |
| Transactions for purchase or sale of any securities such as shares, debentures, bonds, warrants, derivatives and units of schemes floated by Mutual Funds / AMCs by the employees. | Investment in units of own mutual funds scheme. |
| Investments excluded | |
| Investments in Fixed Deposits with Banks /Financial Institutions/companies, Life Insurance Policies, Provident Funds (including Public Provident Fund) or investment in savings schemes such as National Savings Certificates, National Savings Schemes, Kisan Vikas Patra ,or any other similar investment.Investments of a non-financial nature such as gold etc., where there is no likely conflict between the Mutual Fund’s interest and the employees’ interest.Investments in government securities, overnight schemes and schemes of other Mutual Funds. | No specific exclusions. |
| Meaning of UPSI | |
| Where any information available to the Mutual Fund is not yet communicated to the unitholders and which could materially impact the NAV or interest of unitholders, including scenarios where there is a likelihood of: (a) a change in the investment objectives of the concerned Mutual Fund Scheme(s); (b) a change in the accounting policy; (c) a material change in the valuation of any asset, or class of assets; (d) conversion of a close ended scheme to an open-ended scheme or an open-ended scheme to a close ended scheme; (e) restrictions on redemptions, winding up of scheme(s); (f)creation of segregated portfolio; (g)material change in the liquidity position of the concerned Mutual Fund Scheme(s); (h)default in the underlying securities which is material to the concerned Mutual Fund Scheme(s)etc. | “unpublished price sensitive information” shall mean any information, pertaining to a scheme of a mutual fund which is not yet generally available and which upon becoming generally available, is likely to materially impact the net asset value or materially affect the interest of unit holders and shall include the instances where there is a likelihood of: a change in the accounting policy;a material change in the valuation of any asset or class of assets;restrictions on redemptions, winding up of scheme(s);creation of segregated portfolio;the triggering of the swing pricing framework and the applicability of the swing factor;material change in the liquidity position of the concerned mutual fund scheme(s);default in the underlying securities which is material to the concerned mutual fund scheme(s). The definition of UPSI does not cover the items in (a) and (d) and additionally, where there is a likelihood of swing pricing framework[5] to be triggered or swing factor to be made applicable, it will be regarded as UPSI. |
| Restriction on communication of UPSI and other obligations | |
| No employee shall pass on information to anybody inducing him to buy/sell securities which are being bought and/or sold by the Mutual Fund of which the AMC is the investment manager | No insider shall communicate, provide or allow access to or procure any UPSI to/ from any person including other insiders except for legitimate purposes. The Board of AMC, with the approval of the trustees, to make a policy for determination of legitimate purpose[6].Obligation on Board on AMC to ensure that parties, with whom UPSI shared for legitimate purpose, execute NDA to maintain confidentiality and to abstain from dealing in units of MF when in possession of UPSI. Entry to be made in Structured Digital Database capturing name and PAN of person sharing and the one to whom it is shared and nature of UPSI. |
| Requirement for framing of Code of Conduct | |
| The requirements of the SEBI Circular are required to form part of the Code of Conduct for employees adopted by AMCs and/or Trustees. | The Board of the AMCs/ Trustees to ensure through the chief executive officer or managing director that to formulate a code of conduct with their approval to regulate, monitor and report dealing in Mutual Fund units by its designated persons and immediate relatives[7] of designated persons by adopting the minimum standards set out in Schedule B1 of the proposed amendments.The board of directors or head(s) of the organization of the intermediaries/ fiduciaries who are required to handle UPSI relating to a MF scheme or its units in the course of business operations, to formulate a code of conduct to regulate, monitor and report trading by their designated persons and immediate relative of designated persons by adopting the minimum standards set out in Schedule C of PIT Regulations. |
| Meaning of Designated Persons | |
| Access persons shall mean: the Head of the AMC (designated as CEO/Managing Director/President or by any other name), Executive Directors, Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees. Non-Executive Directors of the AMC/trustee company or trustees who are in possession of / have access to any non-public information which could materially impact the price of the securities, NAV of the schemes or interest of the unitholders shall also be deemed as Access Persons | Head of the asset management company (designated as Chief Executive Officer/Managing Director/President or by any other name),Directors of the asset management company or the trustee company,Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief InformationSecurity Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as designated by the asset management company and/or trustees.Explanation :Non-Executive Directors of the asset management company/trustee company or trustees who are in possession of / have access to any “unpublished price sensitive information” , shall also be deemed to be Designated Persons Meaning is same as Access Person. |
| Closure Period / No-Dealing Period | |
| No such concept. However, trades are prohibited while in possession of UPSI. | The Compliance Officer of the Asset Management Company is required to determine the Closure Period during which a designated person or class of designated persons can reasonably be expected to have possession of unpublished price sensitive information, their immediate relatives and any other person for whom such person takes trading decisions cannot transact in units of the Mutual Fund. The Closure Period will be determined at scheme level. During such period no request will be processed by AMC. Exemption from closure period available in following cases, subject to pre-clearance by CO: Off market inter-se transfers between insiders having same UPSI;Transaction pursuant to statutory or regulatory obligation including trades pursuant to SEBI circulars dated April 28, 2021 and September 20, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unitholders of the Mutual Fund Schemes’[8].Transaction triggered by systematic transactions[9], where such systematic transactions are registered atleast 2 months prior to such transactions or pursuant to approved trading plans.Pledge of MF units for bonafide purpose. |
| Pre-clearance or prior approval for personal investments | |
| All Access Persons require prior approval from Compliance Officer (‘CO’) except for investments exempted above.CO to obtain prior approval from Head of the AMC. | Trading in the MF units by designated persons and their immediate relatives, including initiation of systematic transactions,[10] shall be subject to pre-clearance by the compliance officer of the AMC, if the value is beyond prescribed thresholds. The Board of AMC has to specify separate thresholds for systematic transactions and lumpsum payments.Trading in MF units of client AMC by designated persons of fiduciaries/ intermediaries handling UPSI relating to a MF scheme or its units in the course of business operations, will be subject to pre-clearance by compliance officer of the fiduciary/ intermediary. |
| Cooling off period | |
| In case of investments in shares/debentures/ bonds/ warrants of any company or derivatives (not applicable for units of MF), in the secondary market, the compliance officer shall ensure a ‘cooling off’ period of 15 calendar days i.e. the last transaction in that particular security should be done by the MF atleast 15 calendar days prior to the date of the written application by the Access Person. The circular prescribes conditions (Para 2.4.2.2.5) for relaxation of ‘cooling off’ period for Access Persons. The requirement will not apply in following cases: In case of trades executed pursuant to a trading plan in terms of PIT Regulations publicly disclosed on website of the mutual fund.In case of pre-existing pledges/ encumbered arrangements before becoming Access Person, the restriction will not apply in case of sale of securities by lenders due to shortfall of margin, subject to conditions prescribed ( Para 2.4.2.2.6) | No such concept. |
| Validity of approval | |
| 7 trading days. If trade is not executed, fresh approval will be required. | 7 business days. If trade is not executed, fresh approval will be required. |
| Exemption from pre-clearance | |
| For application to a public issue of shares/debentures/ bonds/ warrants of any company made in the normal course of the public issue.Application for additional rights over and above the normal rights entitlement. Sale or renunciation of his rights entitlement.Purchase or sale of units of MF schemes. | Trade pursuant to an approved trading plan.Trading in Overnight Schemes, Index funds and Exchange Traded Funds.Transactions in units by the designated persons pursuant to the mandatory requirement under ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unit holders of the Mutual Fund Schemes’ or otherwise shall be as prescribed in the SEBI Circulars. It is pertinent to note that SEBI Circular exempts purchase and sale of units of MF Schemes from pre-clearance. Only post facto reporting is required. SEBI Circular is presently silent on pre-clearance aspect. |
| Contra trade restrictions | |
| 30 calendar days from the date of their personal transaction. In cases done, employee to provide explanation to the CO, which shall be reported to the Board of AMC and Trustees | 2 months from the date of trade. Profits made or loss avoided to be disgorged to Investor Protection and Education Fund of SEBI. In our view, the restriction will apply only where there is buy and sell within same scheme. For eg. Buying of X units in ABC scheme and redeeming Y units in PQR scheme should not be considered as a contra trade. This has not been captured correctly in the regulations. |
| Exemption from contra trade restrictions | |
| Investments and redemptions made in Mutual Fund units as per the provisions of SEBI circulars dated April 28, 2021 and September 20, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unitholders of the Mutual Fund Schemes’. | Not applicable in case of Overnight Schemes. |
| Tracking of trades | |
| CO to keep a track to check whether the MF has transacted in the same securities before or after the employee’s transactions. | Not expressly specified. However, the same will have to be ensured by the Compliance Officer. |
| Prohibited trades | |
| In Secondary Markets: Purchase of any security (including derivatives) on a “Carry Forward” basis or indulging in “Short Sale” of any security (including derivatives) i.e. employees who effect any purchase transaction(s) shall ensure that they take delivery of the securities purchased, before selling them.Front Running trades[11];Self-Dealing trades[12]. | Trading in securities, other than mutual funds, already covered Chapter II and IV of PIT Regulations. |
| Trades permitted while in possession of UPSI | |
| No specific carve-out provided. | No trades permitted in own MF units while in possession of UPSI. Exonerating circumstances are: Off market inter-se transfers between insiders having same UPSI;Transaction pursuant to statutory or regulatory obligation including trades pursuant to SEBI circulars dated April 28, 2021 and September 20, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unitholders of the Mutual Fund Schemes’.Transaction triggered by systematic transactions[13], where such systematic transactions are registered atleast 2 months prior to such transactions.Transaction pursuant to approved trading plans. |
| Reporting of trades in MF units | |
| To be made by DP to the CO of AMC within 7 calendar days from the date of transaction, except for transaction in overnight schemes[14].In case of investments in SIP, reporting to be made only at a time of making the first installment of the SIP.Not required for investments and redemptions made in Mutual Fund units as per the provisions of SEBI circulars dated April 28, 2021 and September 20, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unitholders of the Mutual Fund Schemes’ | AMC to report details of holdings in the units of its mutual fund schemes by the Designated Person and immediate relative of DPs, as on date specified by SEBI and on a quarterly basis on stock exchange or as decided by SEBI.AMC to report trades reported by DP as per point 3 below on an stock exchange or any other manner stated by SEBI, within 2 business days of receipt.DP to report all the transactions in the units of its own mutual funds to the CO of AMC:within 2 business days from the date of transaction.In case of investments in SIP, reporting to be made only at a time of making the first installment of the SIP along with the period of such transaction and on modifications.Not required for investments and redemptions made in Mutual Fund units as per the provisions of SEBI circulars dated April 28, 2021 and September 20, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management companies with the Unitholders of the Mutual Fund Schemes’Not required for trading in overnight schemes, Index funds and Exchange Traded Funds Note: Presently, no threshold value has been prescribed for continual disclosure. One will have to await SEBI Circular in this regard. |
| Other Disclosures | |
| To be made by Access Person and Employees of AMC Details of transactions effected for purchase and/or sale of securities including transactions in rights entitlements through the secondary market within 7 calendar days from the date of transaction;Details of allotment received against application for public and rights issues within 7 calendar days from the date of receipt of the allotment advice;A statement of holding in securities as on March 31 within 30 calendar days from the end of every financial year ending March 31.Declaration by employees other than access person, on front running and self dealing. | DPs are required to provide name, contact details, PAN of self, immediate relatives, persons with whom they share material financial relationship and details of educational institution from where they graduated, past employer details. |
| Periodic review of compliance | |
| To be done by the Board of the AMC and Trustees. They need to review the existing procedures and recommend changes in procedures based on the AMC’s experience, industry practices and/or developments in applicable laws and regulations. | The Board of the AMC or Board/ head of organization of the concerned fiduciaries/intermediaries to ensure that the CEO or MD or equivalent ensures compliance with the Regulations.Compliance officer to provide periodic reports to the Chairman of the Audit Committee of the AMC and to the Trustees.The Audit Committee of an AMC is required to review compliance with the provisions of these regulations at least once in a financial year and verify that the systems for internal control are adequate and are operating effectively. |
| Other compliances to be ensured | |
| – | The requirement to formulate written policies and procedures for inquiry in case of leak/ suspected leak of UPSI, have whistle blower policy to enable employees to report the instances of leak of UPSI proposed to be made applicable to AMCs with the approval of the MF trustees.Have process and procedures in place on manner of bringing people inside. |
| Reporting of violations, remedial action etc | |
| To be done by AMC in their reports submitted to SEBI. In terms of the SEBI Circular on Alignment of Key Employees of AMC with the interest of the MF unit holders dated April 28, 2021 units allotted to the Key Employees shall be subject to clawback in the event of violation of Code of Conduct, fraud, gross negligence by them, as determined by SEBI. Upon clawback, the units shall be redeemed and amount shall be credited to the scheme. | The Code of Conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, etc., that may be imposed, by the AMC.Violations are required to be reported promptly SEBI in the format prescribed by SEBI. |
[1] https://www.sebi.gov.in/statistics/mutual-fund/mf-investment-objectives.html
[2] In the name of parent, sibling or child of the employee or of the spouse of such employee, any of whom is either dependent financially on such employee or spouse of employee, or consults such employee or spouse of employee in taking decisions relating to trading in securities.
[3] mean the Head of the AMC (designated as CEO/Managing Director/President or by any other name), Executive Directors, Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees. Non-Executive Directors of the AMC/trustee company or trustees who are in possession of / have access to any non-public information which could materially impact the price of the securities, NAV of the schemes or interest of the unitholders shall also be deemed as Access Persons.
[4] As indicated in SEBI’s Comprehensive FAQs on PIT Regulations
[5] Effective from May 1, 2022. Swing pricing refers to a process for adjusting a fund’s net asset value (NAV) to effectively pass on transaction costs stemming from net capital activity (i.e., flows into or out of the fund) to the investors associated with that activity during the life of a fund, excluding ramp-up period or termination. Swing pricing has two forms: (i) the first (the “full” swing pricing) is whereby the NAV of a fund adjusts up or down every calculation day regardless of the size of investor dealing and ii) the second method (the “partial” swing pricing) is only invoked when the net inflow or outflow is greater than a pre-determined threshold (often referred to as the “swing threshold”), which is usually set in terms of a percentage or percentage of AUM. The purpose of swing pricing is to pass on the cost of redemptions — in the form of a lower NAV — to those selling their scheme units. Incoming investors who are countering the outflow, benefit from a lower entry NAV.
[6] It will include sharing in the ordinary course with trustees, RTA, Custodians, valuation agencies, fund accountants, AMFI, CRAs, legal advisors, auditors etc except where sharing has been carried out to evade or circumvent PIT Regulations.
[7] Parent, sibling or child of the employee or of the spouse of such employee, any of whom is either dependent financially on such employee or spouse of employee, or consults such employee or spouse of employee in taking decisions relating to trading in securities.
[8] As per the circular, a minimum of 20% of the salary/ perks/ bonus/ non-cash compensation (gross annual CTC) net of income tax and any statutory contributions (i.e. PF and NPS) of the Key Employees of the AMCs shall be paid in the form of units of Mutual Fund schemes in which they have a role/ oversight, paid proportionately over 12 months and MF units provided proportionate to the AUM of the schemes in which the Key Employee has a role/oversight. For this purpose, Exchange Traded Funds (ETFs), Index Funds, Overnight Funds and existing close ended schemes shall be excluded. There is a lock in period of 3 years or tenure of the scheme, whichever is less, during which redemption is not allowed. Scope for diversification exists for dedicated fund managers.
[9] being transactions that are automatically triggered for execution on a periodical basis as instructed by the investor
[10] being transactions that are automatically triggered for execution on a periodical basis as instructed by the investor such as Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), Systematic Withdrawal Plan (SWP) etc.
[11] means any transaction of purchase and/or sale of a security carried by any employee whether for self or for any other person, knowing fully well that the AMC also intends to purchase and/or sell the same security for its Mutual Fund operations.
[12] trading in the securities based on price sensitive information to which the employee has access by virtue of his office
[13] being transactions that are automatically triggered for execution on a periodical basis as instructed by the investor
[14] Debt funds that invest in securities with a residual maturity of one day
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