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27 May 2012 08:00 PM
SEBI closes consent order option for NAV manipulation and front-running violations 
Team Cafemutual
 

Industry officials say that norms for valuing securities while calculating NAV have been standardised and there is little scope for manipulation now. 

Market regulator SEBI said yesterday that violations related to front-running and NAV manipulation will not be automatically settled through consent orders from now on.

The SEBI circular issued yesterday says, “Defaults relating to manipulation of net asset value or other mutual fund defaults where the actions of the asset management company (AMC)/ mutual fund (MF)/sponsor, result in substantial losses to the unit holders, except cases where the entity has made good the losses of the unit holders to the satisfaction of the board.”

Further, the regulator said that consent orders will not be entertained if any violation is committed within a period of two years from the date of any consent order except if the default is minor. Applicants who have already obtained more than two consent orders will not be allowed to settle any violations through consent order for three years from the date of the last order. SEBI will also not entertain any consent orders till the completion of investigation.

Industry watchers say that most AMCs now follow a standardised practise for valuing securities. “AMFI’s valuation committee has done a great job of ensuring that interpretation concerns are not there anymore. There is very little scope for any manipulation now. It may not be done with the intention of manipulation. It’s just the standardisation of practise,” says Rajesh Krishnamoorthy, MD, iFAST Financial India.

“NAV mismatch used to happen mostly in funds which invested in illiquid securities. It’s about following a standard operating procedure. Some AMCs must have followed a certain procedure which might be incorrect. If you inflate NAV then investors might redeem,” said an operations head of a leading fund house, preferring anonymity.

 
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