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The Securities and Exchange Board of India (SEBI) has asked mutual fund houses to ban the use of cell phones in dealing rooms by people trading in securities on their behalf.
In a mail sent to fund companies, the regulator also asked them to put in place recording facilities in the dealing room and preserve the records of the same for at least eight years.
The mail says, “AMCs (asset management companies) shall ensure that they have put in place the systems/procedures to review these recordings by designated personnel of AMCs on a periodical basis. Report of this review shall be submitted to Trustees/ Trustee Board.”
SEBI further says that AMCs shall also ensure that the terms of reference of internal auditors include review of these reports filed and the same shall be made available for SEBI inspection process.
The order came following the front-running case in HDFC Mutual Fund came to light. SEBI banned an equities trader, Assistant Vice President Nilesh Kapadia of HDFC Mutual Fund from conducting stock market transactions for revealing advanced information of the fund's trading to three market participants. Those three have also been banned from the markets. In an order late on 17th June, SEBI gave a detailed account of instances where Rajiv Ramniklal Sanghvi, Chandrakant P Mehta and Dipti Paras Mehta placed orders in the same set of stocks, just before those were traded by Kapadia on the fund company's behalf.
Front-running consists of buying or selling of shares by employees working for investment funds or brokers before executing orders for their employer. Apart from the ban, SEBI has also ordered recovery of the loss incurred by the investors on account of these people, and also from HDFC Mutual Fund. The regulator has also ordered an internal enquiry by the fund house.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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