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SEBI Guidelines for employees of AMC(s) and trustees of Mutual Funds

Finsec Law Advisors

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SEBI has issued guidelines for investment and / or trading in securities by employees of AMCs and trustees. The objective behind issuing these guidelines, according to SEBI, is to (a) ensure that all securities transactions made by employees in their personal capacity are conducted in consonance with these guidelines and in such a manner so as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility; (b) to prevent employees of AMCs and trustees from taking undue advantage of any price sensitive information that they may have about any company; and (c) to guide employees of AMCs and Trustees in maintaining a high standard of probity that one would expect from an employee in a position of responsibility. The guidelines cover transactions for purchase or sale of any securities such as shares, debentures, bonds, warrants, derivatives and units of schemes floated by mutual funds / AMCs where the concerned persons are employed. These Guidelines cover transactions for sale or purchase of securities made in the name of employees, either individually or jointly, in the name of the employees’ spouse or parent or sibling or child.

These guidelines do not apply to investments by employees in fixed deposits with banks / financial institutions / companies or investments in saving schemes such NSC, NSS or other similar investments, 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, money market instruments, money market mutual fund schemes, liquid schemes and schemes floated by other Mutual Funds / AMCs.

The guidelines also proscribe employees from passing on information to anybody inducing such person to buy/sell securities which are being bought and/or sold by the Mutual Fund of which the AMC is the investment manager. Further, persons such as the CEO/Managing Director/President, fund managers, dealers, research analysts, all employees in the fund operations department and heads of all divisions and/or departments or any other employee as decided by the AMC(s) are required to seek prior approval of the Compliance Officer for effecting transactions for sale or purchase of securities other than those expressly stated to be exempt under these guidelines. The Compliance Officer shall apply to the Head of the AMC for prior approval of his/ her transactions. Furthermore, the guidelines also state that all employees shall refrain from profiting from the purchase and sale or sale and purchase of any security within a period of 30 calendar days from the date of their personal transaction and in cases where it is done, employees shall provide a suitable explanation to the Compliance Officer, which shall be reported to the board of the AMC and the trustees at the time of review.

The guidelines have only prescribed certain minimum requirements that have to be followed by all employees of AMCs and trustees of mutual funds to prevent abuses like front running and insider trading. Mutual funds are welcome to prescribe higher standards. The guidelines issued by SEBI under this circular consolidates guidelines issued under various circulars and it will no doubt act as a firm guide for AMCs and trustees across the board to adopt uniform guidelines to regulate their employees.