Sebi introduces code of conduct for mutual fund managers, dealers

By: |
November 3, 2020 2:27 PM

In addition, asset management companies (AMCs) have been allowed to become self-clearing members to clear and settle trades in the debt segment on behalf of its mutual fund schemes.

The intermediaries would have to provide necessary guidance to their investors in use of UPI while making applications in public issues.

Market regulator Securities and Exchange Board of India (Sebi) has introduced a code of conduct for fund managers and dealers of AMCs in order to make them more accountable.

In addition, asset management companies (AMCs) have been allowed to become self-clearing members to clear and settle trades in the debt segment on behalf of its mutual fund schemes.

The move comes after Sebi board approved a proposal in this regard in September. In a notification dated October 29, Sebi said that chief executive officer (CEO) of the AMC will be responsible to ensure that the code of conduct is followed by fund managers and dealers. It, further, said any breach of the code of conduct will be brought to the attention of the board of directors of the AMC and trustees.

Currently, mutual fund norms require AMCs and trustees to follow a code of conduct. Also, the CEO is entrusted with several responsibilities.

The fund managers and dealers will abide by the code of conduct and submit a quarterly self-certification to the trustees that they have complied with the code of conduct or list exceptions, if any. Fund managers will have an appropriate and adequate basis for investment decision and will be responsible for investment in the funds managed by them.

Further, fund managers will record in writing, the decision of buying or selling securities together with the detailed justifications for such decisions and not indulge in any act which results in artificial window dressing of the net asset value (NAV).

Sebi said dealers will have to ensure that orders are executed on the best available terms, taking into account the relevant market at the time for transactions of the kind and size concerned to achieve the objectives of the scheme and in the best interest of all the unit holders.

Fund managers and dealers will have to ensure that investments are made in the interest of the unit holders; and will act fairly and deal with market participants in a consistent and transparent manner. Also, they will have to identify existing or potential conflicts of interest as per their institutions policies and address the same and disclose all interests in securities as required by statutory requirements.

Further, they are not allowed to carry out any transaction on behalf of a fund with any counter party who is an associate of the sponsor/AMC/fund manager/dealer/CEO “unless such transaction is carried out on arm’s length basis on terms and at a price consistent with best execution standards and at a commission rate no higher than customary institutional rates.”

They are not supposed to “indulge in any unethical business activities or professional misconduct involving dishonesty, fraud or deceit or commit any act that could damage the reputation of the organisation or the mutual fund industry”. They cannot offer or accept any inducement in connection with the affairs of managing the funds of unitholders which is likely to conflict with the duties owed to the unitholders and not receive any gift or entertainment which is not in adherence of the policy of the AMC framed in this regard.

With regard to communication and disclosure, Sebi said fund managers and dealers will always have to communicate in unambiguous, transparent and accurate manner and conduct all communication during market hours through recorded modes and channels only. They will have to provide appropriate inputs to the valuation agencies and highlight any material deviation. Further, they will not disclose any material non-public information that could affect the value of an investment to external parties and will not act or cause others to act on such information.

In addition, they will need to highlight and bring to the notice any instance of suspected malpractice or market misconduct to the appropriate risk, compliance and regulatory chains of command.

Sebi said they cannot favour one scheme over another for the purpose of security allocation, transfer of benefits (profit/loss) or any valuation gain or loss including by way of inter scheme transfers or otherwise among others.

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