SEBI proposes setting up of surveillance system for asset management companies

The Securities and Exchange Board of India (SEBI) has proposed a slew of measures to strengthen governance in the equities market. In a consultation paper dated May 20, the capital markets regulator proposed setting up of adequate surveillance and internal control systems (collectively referred to as 'Institutional Mechanism') by Asset Management Companies (‘AMCs’) for deterrence of possible market abuse and fraudulent transactions in securities related to the AMCs' transactions.

The capital markets regulator has also proposed accountability of the AMCs and their senior management personnel on implementation of the institutional mechanism to deter possible market abuse and fraudulent transactions in securities related to the AMCs' transactions and to ensure monitoring and compliance.

The decision has been taken months after the capital markets regulator barred 21 entities including Viresh Joshi, Axis Mutual Fund’s former manager, in relation to a front-running case in March this year. Last month, SEBI barred three individuals and two entities in relation to the front-running case in Life Insurance Corporation (LIC).

At present, the regulatory framework for AMCs includes provisions relating to the code of conduct for AMCs, fund managers & dealers, and various other disclosure and reporting requirements. As an additional deterrence, the framework also requires the fund managers and dealers to conduct all communication during market hours through recorded modes and channels only.

"The AMCs shall put in place robust surveillance systems and internal control procedures, to deter possible misconduct by employees or such other entities which may have information relating to fund management and/or investments of Mutual Fund schemes," the consultation paper said.

"The AMCs shall customize their surveillance systems and internal control procedures including alert types, parameters and thresholds based on backtesting of historical data to ensure their effectiveness," it added.

Curbs to maintain price volatility in F&O trading

Meanwhile, in another consultation paper, the capital markets regulator has proposed price band formulation for scrips in futures and options trading to strengthen volatility management and minimize information asymmetry. According to the consultation paper, the capital markets regulator has given proposals to curb longer trading hours as well as price movements. According to the proposal, SEBI said that if the price of any stock falls and rises by 10% in one session, the trading is to be suspended for an hour, instead of the existing cooling-off period of 15 minutes.

"As price keeps trending in one direction, say beyond 20% (non-derivative scrips have maximum permissible daily price band of 20%), cooling off period would be increased in a phased manner, subject to maximum cooling off period of 1 hour and the flexing percentage would be reduced in a phased manner subject to minimum flexing of 2% as part of the volatility control measures of the exchange," the consultation paper said.

The development comes in the wake of the free-fall of Adani Group stocks after the US short-seller alleged the port-to-energy conglomerate of stock market manipulation.

IPO listing in 3 days

Another key measure proposed by the capital markets regulator is regarding the reduction of the timeline for IPO listing from the existing 6 days to 3 days, in order to benefit both issuers as well as investors. “Issuers will have faster access to the capital raised thereby enhancing the ease of doing business and the investors will have the opportunity for having early credit and liquidity of their investments,” the capital markets regulator said.