(Bloomberg) -- India’s capital markets regulator is mulling imposition of insider trading regulations on mutual funds to bring them at par with rules governing securities trading.
The Securities and Exchange Board of India has sought public opinion on initiating penal action against those who misuse sensitive, non-public information related to mutual fund plans, directly or indirectly, as part of their fiduciary capacity, according to a consultation paper released Friday. The regulator asked for comments until July 29.
The regulator noted that in the recent past registrars, transfer agents and top personnel of asset management companies have redeemed their holdings in mutual fund plans while in possession of unpublished sensitive information.
The regulator’s proposals are a fall out of Franklin Templeton’s closure of six debt funds in 2020, where it wound up $4.1 billion after a liquidity crisis compelled the firm to freeze investor withdrawals. In 2021, the regulator had barred top executives including Franklin’s then Head of Asia-Pacific Distribution Vivek Kudva for redeeming their units ahead of the other investors and breaching fiduciary duties. It barred them from accessing the securities market for a period of one year and imposed a combined penalty of 70 million rupees ($883,260).
The proposed rules define who is considered an insider, unpublished price-sensitive information and connected persons.
‘It seems that the regulator has very widely defined two categories-- connected persons and unpublished price sensitive information and they may need to narrow it down as otherwise such a wide proposal will make trading in mutual fund a problem for fiduciaries,” said Sandeep Parekh, managing partner, FinSec Law Advisors.
Unpublished price sensitive information includes likelihood of change in investment objectives, accounting policy, valuation of assets, winding up of the plan, restrictions on redemptions among others, according to the paper.