In a recent informal guidance given to SBI Funds Management Private Ltd. (“SBIFM”), fund manager to the SBI Alternative Equity Fund, a SEBI registered Alternative Investment Fund (“AIF”), SEBI has clarified that the code of conduct governing trading by employees and their connected persons, under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Code”), is also applicable on the employees of SEBI registered AIFs while investing in the units of their AIF schemes which invests in securities which are listed or proposed to be listed (“Listed Securities”).
In a request for an interpretative letter, SBIFM had requested a clarification on: (i) whether its employees can invest in the units of their AIF; and, (ii) in the absence of any explicit inclusion of the units of AIF in the definition of ‘securities’ as defined under the Securities Contract (Regulation) Act, 1956, whether the Code will be applicable on employees of SBIFM for investing in the units of their AIF schemes.
On October 09, 2018, SEBI issued a letter stating that the employees of SBIFM can invest in the units of AIF within the limitation prescribed under the SEBI (AIF) Regulations, 2012. In response to Query (ii), while quoting its circular dated November 17, 2016 governing employees of asset management companies and trustees to the mutual funds, SEBI has stated that under its 2016 circular, such employees are also governed by the Code while investing in the units of their mutual fund schemes, as they may possess information pertaining to the investments made by the mutual fund, including investments in Listed Securities. Same can be attributed to the employees of AIFs. Therefore, the Code will also be applicable on the employees of SBIFM who invests in the units of such AIF schemes, which invests in Listed Securities.
This informal guidance brings clarity on the application of the Code on the employees of AIFs; however, such employees should not be made subject to the same stringent rules as are applicable to the employees of listed entities. In the recent report of the Fair Market Conduct Committee of SEBI, it was recommended that there should be a separate code of conduct for the listed entities and market intermediaries, as a number of provisions under the Code may not be equally applicable on both. As per the press release issued pursuant to the SEBI Board meeting dated September 18, 2018, the said recommendations were discussed by the SEBI Board however, no circular has been issued yet for implementation of the same.
