In a letter by the Association of Mutual Funds
in India (Amfi), the industry body informed market watchdog that in the current situation, it may not be possible for MFs to conduct dealing operations from MFs’ premises and so dealers have to operate from alternate site, or their residence.
“In such a scenario, the access controls presently exercised in the MF dealing rooms would not be available at such alternate location or residence of the dealer. Further, call recording of deals and records for submission of mobile phones etc. may not be feasible,” the industry body pointed out.
MFs have assured the market regulator that dealers will be advised to strictly comply with the regulatory requirements and not indulge in any activities, which could result in non-compliance.
"Sebi has been quite stringent in its inspections in past and rightly so. But, some exemptions might be needed from regulatory in current conditions," an executive of a fund house said.
Cases of front-running have come under regulatory scanner, where a dealer takes unfair advantage of an order placed by a fund house.
“… all deals concluded would be followed by an electronic confirmation by way of an email or through other systems like Reuters Messenger / Bloomberg Chats, etc…”
Further, MFs want Sebi to have a lenient view if any participant is unable to comply with new regulatory norms within stipulated timelines amid the limitations and challenges posed by the Coronavirus
The industry body has highlighted the liquidity crunch in debt markets
following outbreak of Coronavirus, which would make it difficult for MFs to meet sectoral limits in debt schemes and exit from unlisted debt securities, in-line with the regulatory timelines.
“… owing to significant market volatility due to the Covid-19 scare and the year end, the industry is seeing significant yield movements, low liquidity and large redemptions,” Amfi said in its letter.
Last year in October, Sebi capped the sectoral limit on exposure in debt schemes to 20 per cent from 25 per cent in light of concerns around asset-liability profiles of non-bank financial companies. The additional sectoral exposure limit for housing finance companies (HFCs) was capped at 10 per cent from 15 per cent. Overall exposure limit was kept at 20 per cent for HFCs. This norm was to come into force from April 1, 2020.
MFs have asked Sebi to give the industry time till June 30, 2020, to re-balance to the revised sectoral limits, and said that any breaches by any participant will be passive in nature.
MFs were also required to cut their exposures to unlisted non-convertible debentures (NCDs) in graded manner. By March 31, 2020, the individual scheme-level exposure was to be reduced to 15 per cent and to ten per cent by June.
“… the existing stock of unlisted NCDs has become illiquid and untradeable subsequent to Sebi circular…,” the letter said.
MFs also want regulator to consider relaxing the borrowing limits as redemptions pressures could mount in the coming days as markets
continue to remain volatile.
The industry has urged the regulator to temporarily defer its ongoing inspection and a “new deadline is imposed once clarity on the Covid-19 situation emerges…”
Also, the industry wants the regulator to be mindful of the ‘extraordinary conditions’ and as long as the fund house is meeting all the checks and balances in letter and spirit, not mark any genuine misses it finds in its audit as non-compliance.
In extreme situation, MFs say if their office building premises are shut down shut down, they may have to declare a working day as non-business day even if stock exchanges and banks are operational.