SEBI’s revised norms on trade executions offer some relaxation to fund managers. The market regulator said that a fund manager may authorise an employee of the AMC to place orders on equity and equity related instruments on his behalf, provided the order instructions are through the electronic mode, including email and an audit trail is maintained.
In September 2020, SEBI had asked fund houses to use an automated Order Management System (OMS) to place orders in case of equity and equity-related instruments. And the regulation allowed only the fund manager(s) of the respective schemes to place these orders.
OMS is a trade order management system. It is designed to help firms with the real-time monitoring of market positions and track the progress of each order. Such features also enable SEBI to detect any regulatory violations.
Further, the recent regulation said that schemes where the discretion of the fund manager is not required for placement of order is not mandated to be placed through the OMS. This means placing orders through OMS is not mandatory in case of arbitrage transactions, stock lending and borrowing transactions, passive schemes such as index funds and ETFs or schemes investing primarily based on pre-defined rules and models. The fund houses, however, have to maintain a scheme-wise audit trail of placement of orders, order execution and trade allocation along with time stamping of each stage of the process.
Further, the September circular had said that all orders of the fund manager(s) will be received by dedicated dealers responsible for order placement and execution. However, the recent circular says that the requirement of a dedicated dealer is not mandatory in case of orders for arbitrage transactions, stock lending and borrowing transactions, passive schemes such as index funds and ETFs and schemes investing primarily based on pre-defined rules and models.
These relaxations come after AMFI’s letter to SEBI that highlighted operational challenges in adhering to the September circular.
SEBI, however, did not address a few other issues highlighted by the industry body. This includes all communication by dealers as well as fund managers during market hours will now have to be done only through recorded modes and channels. This may require fund houses to record fund managers’ cell phone conversations as well as their offline interactions with various stakeholders such as business partners, brokers, distributors and analysts. Since such interactions are typically confidential, they may now have to be done after market hours.
Some fund managers feel this regulation could mean they may not have access to crucial information during market hours. And this could mean other institutional investors such as AIFs, PMS players, insurance players and foreign portfolio investors will have an advantage in terms of access to information.
