In a bid to make mutual funds more accountable, SEBI has introduced a Code of Conduct for fund managers including chief investment officers and dealers. The CEO of a fund house will be responsible for ensuring that the Code of Conduct is followed by all such officers, SEBI said in a gazette notification.
Currently, the MF regulations provide for AMCs and Trustees to follow a Code of Conduct. Also, under current MF Regulations, CEO is entrusted with several responsibilities.
The move comes after SEBI showing its displeasure with the conduct of fund houses on a few occasions in the past on issues such as not sticking to the mandate of schemes, fund managers entering into agreements with borrowers and failure to ensure adequate risk-management mechanisms.
SEBI has also allowed fund houses to become self-clearing members of the recognised Clearing Corporations to clear and settle trades in the debt segment of recognised stock exchanges, on behalf of its mutual fund schemes.
So far, fund houses place orders as investors. Then the order goes through a broker and then through a clearing member.
Here is the Code of Conduct for fund managers and dealers
Ensure that investments are made in the interest of the unit-holders
Strive for highest ethical and professional standards to enhance the reputation of the markets
Act honestly in dealing with other market participants
Act with integrity in avoiding questionable practices and behaviour
Abide by the act rules, regulations, guidelines and circulars governing the securities market and keep themselves up-to-date with the latest developments
Not indulge in any unethical business activities or professional misconduct that could damage the reputation of the MF industry
Identify and address the potential conflicts of interest
Not accept any inducement in connection with the affairs or business of managing the funds of unit holders which is likely to conflict with the duties owed to the unit holders
Disclose all interest in securities
Not receive any gifts or entertainment which is not in adherence of the gifts and entertainment policy of the AMC
Not carry out any transaction on behalf of a fund with any counter party unless such transaction is carried out on arm’s length basis
Execution standards
Fund managers
Have an appropriate reason for making an investment decision
Record in writing, the decision of buying or selling securities together with the detailed justification
Not indulge in any practice which results in artificial window dressing of the NAV
Dealers and fund managers
Adopt fair deal execution practices
Fully document all correspondence and understanding during a deal with counter parties in the book of the fund
Not favour one scheme over another for the purpose of security allocation, transfer of benefits or any valuation gain by way of inter-scheme transfers or otherwise
Not indulge in circular trading
Not enter or participate in transactions with the intent of disrupting the market, the distorting the prices or artificially inflating trading volumes
Not indulge in simultaneously buying and selling the same securities at off market prices in order to create false or misleading signals
Not manipulate the prices of infrequently traded securities
Not enter into agreements for sale or purchase of a security including a government security where there is no change in beneficial interests
Not carry out ‘routine deal’
Not put misleading bids outside the market range not make frivolous quotations with an intent to mislead the market participants
Not sell securities to a third party at the month/quarter end with an understanding to purchase the same at the at a later date to meet periodically liquidity
