InvestorQ : Why is SEBI now proposing to extend insider trading norms to mutual funds also?
Arusha Ray made post

Why is SEBI now proposing to extend insider trading norms to mutual funds also?

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4 weeks ago
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SEBI now proposes to extend the insider trading norms to mutual funds, apart from equities. Currently, insider trading rules only extend to equities, after the Templeton case, the decision to extend these insider trading regulations to mutual funds also will put a lot of pressure on fund managers and CIOs. Hopefully, that should help avoid repeat instances of cases like Franklin Templeton, where SEBI allegedly found the fund manages and the CEO flagrantly violating the trust of the unit holders.

Let me start off with a quick rewind of the Templeton story, which has largely influenced this particular issue. In the Templeton case, according to the report by SEBI, there were flagrant instances of the top managers and their families exiting the fund just in time ahead of the negative news release. That could not be a coincidence. It logically follows that they exited on the basis of access to insider data which was not covered under Insider Trading rules. However, that still amounts to breach of trust of the unit holders.

However, there are some sceptics in this story too. For example, can there be insider trading in mutual funds which is based on a public portfolio. The answer is yes if the top managers have access to privileged information and use it flagrantly. The idea is slightly different. Cases of insider trading in mutual funds do throw up unique cases like Templeton, which had a lot of illiquid debt. In such cases, the NAV valuations were presumptive and did not really give a true picture. That is the dichotomy fund managers exploited to the hilt.

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