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Sebi  Aims  To  Tighten Disclosure Rules On Fund Manager Exits


The Securities and Exchange Board of India will soon announce disclosure norms for asset management companies, annoyed with the way Axis Mutual Fund has handled the suspension and the eventual termination of two fund managers allegedly involved in front-running.

“Sebi is working on when and how disclosures should be made in such circumstances,” a senior regulatory official said on the condition of anonymity. “Sebi believes the more disclosures, the better. So, something similar (to norms applicable to listed companies) would be made mandatory for fund houses if fund managers are asked to exit, or the fund house/specific schemes go through some major management changes. Sebi’s mutual fund department is working on something. These new norms will be announced soon,” the person said.

Axis Mutual Fund last week terminated two fund managers—Viresh Joshi and Deepak Agarwal, who were suspended on 4 May on charges of alleged misconduct, pending investigations.

The fund house issued two statements announcing the change in fund managers, but the disclosure lacked details about why these changes were made.

The statement issued on the termination of their services did not shed any light on whether Axis Mutual Fund had completed the suo-moto investigation and on what grounds were they terminated, leaving room for speculation on whether they were front-running or there were kickbacks and on the size of the manipulation.

“Axis started the suo-moto investigations against the two officers in the month of March, but it suspended them and issued a press statement only after there was media scrutiny. Considering that Sebi is working on industry-level changes, Axis will also be forced to issue a more detailed statement,” said a person with knowledge of the matter.

“For listed companies, we have the LODR (Listing Obligation and Disclosure Requirement), which takes care of the disclosures for listed companies. But there isn’t anything similar for mutual funds for events that impact unitholders. Having said that, there are things to be considered when the information becomes material for a unitholder,” said the official cited above.

According to Amit Tandon, chief executive of Institutional Investor Advisory Services (IIAS), a proxy advisory firm, fund houses should make the same disclosures as they expect from the companies they invest in.

“The thumb rule should be to disclose everything and in the precise details as the fund managers expect from listed entities. So, relying on LODRs with certain exceptions and additional standards would be in the interest of the unitholders,” Tandon said.

However, when a whistleblower complaint becomes material and when it should be disclosed remain questions even for listed companies.

“There could be many whistleblowers’ complaints, and many would be dismissed without merit, making the disclosures a tad tricky. Listed companies typically disclose complaints (whistleblower or otherwise) in their annual reports. But is that enough, is something the regulator is debating,” said the second person cited above.

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