Insider trading norms for MFs effective from Nov 1

Nearly two years after they were notified, insider trading regulations for mutual funds (MF) will finally come into force from November 1 this year. Such rules currently apply only to securities of listed companies or those proposed to be listed.

SEBI had issued a consultation paper on applying insider norms to mutual funds units in July 2022, followed by a notification in November. The delays in enforcing the law were mainly due to the industry pushback and operational hurdles in setting up common standards.

The new norms will require MFs to create a structured digital database (SDD) containing the nature of unpublished price sensitive information, a separate code of conduct for employees and additional disclosures — increasing compliance burden significantly.

No “insider” can trade in units of a mutual fund scheme when in possession of unpublished price sensitive information (UPSI), which may have a material impact on the net asset value of a scheme or on the interest of the unit holders.