Daily News Analysis » May 2024 » SEBI’s New Guidelines for AMC’s: 2 May 2024

SEBI’s New Guidelines for AMC’s: 2 May 2024

The Securities & Exchange Board of India (SEBI) is making it mandatory for Asset Management Companies (AMCs) to have an institutional mechanism for deterrence of potential market abuse.

Why in news?

The Securities & Exchange Board of India (SEBI) is making it mandatory for Asset Management Companies (AMCs) to have an institutional mechanism for deterrence of potential market abuse. 

Key points regarding recent update by SEBI

  • Institutional Mechanism: In order to detect misconducts, like front-running, insider trading, and the abuse of sensitive information, AMCs must put in place strengthened surveillance systems, internal controls, and misuse of sensitive information. 
  • Whistleblower process: AMCs are required to establish a whistleblower procedure in order to promote transparency.

Asset Management Companies (AMCs):

  • These are financial institutions responsible for managing and investing funds pooled from investors in various financial assets such as stocks, bonds, and other securities. 

Insider Trading: 

  • Insider trading is the trading of a public company’s stock or other securities based on material, nonpublic information about the company.

Front Running: 

  • Front-running is trading stock or any other financial asset by a broker who has inside knowledge of a future transaction that is about to affect its price substantially.

 

Front-running is commonly confused with insider trading, but they are distinct. Insider trading refers to a company insider who trades on advanced knowledge of corporate activities–for example, using their insider knowledge to buy or sell shares ahead of a major announcement.