Mutual Fund Units now under ambit of SEBI PIT Regulations

Regulation

Impact of this particular amendment can be understood with the help of example;

A is an Insider as per the definition of PIT Regulations. He has access to Unpublished Price Sensitive Information (UPSI) of a traded entity – X Limited.

Now, being in possession of UPSI, Mr A purchases shares of X Limited from the stock exchange and sells it post its publication and books profit. He has in this case violated PIT Regulations and if successfully prosecuted, SEBI can impose a penalty of 3x the profit or Rs 25 Crores whichever is higher.

Similar to this, Mr A has UPSI of a mutual fund’s particular scheme which may affect its NAV. Until now, if he would have traded on this information, it would not be an offence under the PIT Regulations, but the same is now pari passu to offence as dealt in other securities.

Instead of buying the shares on stock exchange, Mr A purchases unit of mutual fund scheme – Y. This scheme has a shareholding in X Ltd. So indirectly on any gain due to UPSI, Mr A would also get a profit. Whether such inter-related transactions would also be part of PIT Regulations are a question to be examined.

Since, the new regulations are amended to include units of Mutual Funds, the appropriate terminology for the same is inserted, i.e. redeeming, switching and to redeem or to switch.

(c) “associate” includes a person,—

(i) who directly or indirectly, by himself, or in combination with relatives, exercises control over the asset management company or the trustee, as the case may be, or

(ii) in respect of whom the asset management company or the trustee, directly or indirectly, by itself, or in combination with other persons exercises a control, or

(iii) whose director, officer or employee is a director, officer or employee of the asset management company;

i. Any Person, who at present or in past, 2 months priort to act was directly, indirectly or in any capacity including by frequent communication had any relationship with mutual fund or asset management company or trustees which allowed him access to UPSI or reasonably is expected to have such access.

ii. Following person(s) shall be deemed to be connected persons, unless contrary established

a. Immediate relative of person in Clause (i) (or)

b. Sponsor, holding company or associate company or subsidiary company of the Sponsor or Asset management company and

Trustees; (or)

c. Board of Directors and key management personnel of sponsor of the mutual fund; or

d. Directors or employees of registrar and share transfer agents, custodians or valuation agencies of the mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or

e. an official or an employee of fund accountant providing services to a mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or

f. an official or an employee of a self-regulatory organization recognised or authorized by the Board; or

g. an official of a stock exchange for dissemination of information; or

h. Directors or employees of auditor, legal advisor or consultants of the mutual fund or asset management company who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operation; or

i. an intermediary as specified in section 12 of the Act or an employee or director thereof who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or

j. a banker of the mutual fund or asset management company; or

k. a concern, firm, trust, HUF, company or association of persons wherein a director of an asset management company and Trustees or his immediate relative or banker of the company, has more than ten per cent of the holding or interest

i. a connected person; or

i.  in possession of or having access to unpublished price sensitive information pertaining to a scheme;

i. a change in the accounting policy;

ii. a material change in the valuation of any asset or class of assets;

iii. restrictions on redemptions, winding up of scheme(s);

iv. creation of segregated portfolio;

v. the triggering of the swing pricing framework and the applicability of the swing factor;

vi. material change in the liquidity position of the concerned mutual fund scheme(s);

vii. default in the underlying securities which is material to the concerned mutual fund scheme(s)

i.  Head of the asset management company (designated as Chief Executive Officer/Managing Director/President or by any other name),

ii. Directors of the asset management company or the trustee company,

iii. 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 designated by the asset management company and/or trustees.