There is no WFH for financial intermediaries: SEBI plans guidelines for improvement

The Securities and Exchange Board of India (SEBI) is planning to ask financial intermediaries to bring their employees back to full power. Epidemic-forced work from home, it is felt, has affected the surveillance system that was put in place to check internal transactions and front-run.

The issue became urgent after the two fund houses found themselves in the midst of an oncoming storm in less than a week.

Market regulators have been tightening compliance rules for mutual funds for the past few years. In October 2020, SEBI issued a directive that all those involved in investment decisions should compulsorily record all their calls during market hours. This measure has lost some of its effect because work from home has become the norm during epidemics.

The asset management industry protested strongly when SEBI announced its decision to implement call recording rules. Faced with accusations of running two mutual fund houses to the front, it is felt that the industry cannot hide behind privacy under this rule.

Although industry experts say front-running is very common in most dealing rooms, it is difficult to set up because employees have become smarter and no longer use friends and family accounts. Given that demat accounts are leased for such front-driven activities, SEBI has found a way to crack down on these seemingly unrelated entities as well.

Acquaintances say Sebi has installed state-of-the-art technology tools and algorithms that can help it detect patterns of front-run establishment, even if the parties are clearly unrelated.

The market regulator is not in the mood to allow these instances to pass without exemplary punishment.

Last week, Axis Mutual Fund said it had suspended two fund managers – Biresh Joshi and Deepak Agarwal – for irregularities that could include a forward race. Fund house Suomoto has launched an investigation after one of the fund managers was seen driving a limited edition Lamborghini.

Front-running is when an individual, primarily a broker or an advisor, takes the position of buying or selling any stock based on the exclusive knowledge that the recommendations issued by them must change the price of a particular stock in the near future.

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