CIRCULAR
SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/107 August 05, 2024
To,
All Mutual Funds
All Asset Management Companies (AMCs)
All Trustee Companies/ Board of Trustees of Mutual Funds
Association of Mutual Funds in India (AMFI)
All Recognized Stock Exchanges
All Recognized Depositories
Madam/ Sir,
Subject: Institutional mechanism by Asset Management Companies for
identification and deterrence of potential market abuse including front-running
and fraudulent transactions in securities
1. In order to address instances of market abuse including front running and fraudulent
transactions in securities, consultations were held with relevant stakeholders including
Mutual Funds’ Advisory Committee (‘MFAC’) on the proposal of putting in place a
structured institutional mechanism at the end of AMCs, which can proactively identify
and deter instances of such market abuse. Further a public consultation was also
carried out on the abovementioned proposal.
2. Accordingly, the SEBI (Mutual Funds) Regulations, 1996 (hereinafter referred to as
“MF Regulations”) have been amended vide notification no. SEBI/LAD-
NRO/GN/2024/197 dated August 01, 2024 (link), to give effect to the above proposal.
3. In view of the above amendment, AMCs shall put in place an institutional mechanism
for identification and deterrence of potential market abuse including front-running and
fraudulent transactions in securities. This mechanism shall consist of enhanced
surveillance systems, internal control procedures, and escalation processes such that
the overall mechanism is able to identify, monitor and address specific types of
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misconduct, including front running, insider trading, misuse of sensitive information
etc. The mechanism shall ensure the following –
3.1. Accountability:
3.1.1. The Chief Executive Officer or Managing Director or such other person of
equivalent or analogous rank and Chief Compliance Officer of the asset
management company shall be responsible and accountable for
implementation of the institutional mechanism for deterrence of potential
market abuse, including front-running and fraudulent transactions in
securities.
3.2. Alert-based surveillance mechanism:
3.2.1. AMCs shall develop and implement systems and procedures to generate
and process alerts in a timely manner.
3.3. Processing of alerts:
3.3.1. During the processing of alerts, AMCs shall consider and review all
recorded communications including chats, emails, access logs of dealing
room and CCTV footage (if available).
3.3.2. AMCs shall also maintain and monitor entry logs to the AMCs’ premises.
3.4. Standard operating procedures:
3.4.1. The AMCs shall formulate written policies and procedures for conducting
examination and taking action in case of potential market abuse including
front-running and fraudulent transactions in securities by its employees and
connected entities.
3.4.2. Such policies/procedures shall be approved by AMCs’ Board of Directors.
3.5. Action on suspicious alerts:
3.5.1. 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.
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3.6. Escalation process:
3.6.1. AMCs shall have an escalation process to promptly inform its Board of
Directors and Trustees, regarding instances of potential market abuse, if
any, and results of the examination conducted by the AMCs.
3.7. Whistle blower policy:
3.7.1. AMCs shall have a documented whistle blower policy in line with sub-
regulation (29) of regulation 25 of the SEBI MF Regulations.
3.8. Periodic review:
3.8.1. AMCs shall ensure that the procedures and/or systems put in place are
reviewed and updated at appropriate periodic intervals.
4. Trade related information from exchanges:
4.1. For effective functioning of the institutional mechanism, the stock exchanges and
depositories shall develop systems, in consultation with AMFI, to enable data
sharing with AMCs.
5. Reporting to SEBI – In reference to alerts generated by AMCs as mentioned under
para 3.2 above, AMCs shall report all examined alerts to SEBI along with action taken,
in the Compliance Test Report (‘CTR’) and the Half-yearly Trustee Report (‘HYTR’)
submitted to SEBI, in the following format:
Sr. Alert type and Observations made from Actions taken by
No. description the alert the AMC
6. In order to ensure uniform implementation of the abovementioned institutional
mechanism across the industry, AMFI in consultation with SEBI, shall prescribe the
detailed implementation standards within fifteen days from the date of this circular.
The detailed implementation standards issued by AMFI shall mandatorily be followed
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by all AMCs.
7. This circular is issued in exercise of the powers conferred by Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 25 (27) and
Regulation 77 of the SEBI (Mutual Funds) Regulations 1996 to protect the interest of
investors in securities and to promote the development of, and to regulate the
securities market.
8. This circular is available at www.sebi.gov.in under the link “Legal ->Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
Investment Management Department
+91-22-26449233
peterm@sebi.gov.in
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