By Jayant M. Thakur, Chartered Accountant
BACKGROUND
SEBI released, on 8th July 2022, a consultation paper (“the Paper”) for provision for prohibition of Insider Trading in mutual funds. It may be recollected that the current regulations related to Insider Trading, (the SEBI (Prohibition of Insider Trading) Regulations, 2015, or “Insider Trading Regulations”) specifically state that they do not apply to mutual fund units. SEBI pointed out in the paper recently, two serious cases of alleged abuse by insiders of unpublished price sensitive information. Both included cases of redemption of units by insiders while having access to unpublished material information which allegedly helped them gain while the general public investors suffered. While the said persons acted against the SEBI rules under other generic provisions, there was clearly a void in terms of having specific provisions for insider trading in mutual funds.
Mutual funds have, as per Association of Mutual Funds of India, assets under management of - over Rs. 35 trillion. The stakes are clearly high and abuse of price sensitive information by trusted insiders could be of large amounts, as shown by the orders referred to (though not named) in the paper. Having a comprehensive set of regulations on insider trading for mutual funds thus was clearly overdue. SEBI thus took a quick step by issuing this Paper, that suggests detailed provisions for insider trading in
