Circular on Mutual Funds
Summary
This circular extends the applicability date for uniform Net Asset Value (NAV) usage upon fund realization to February 1, 2021. It modifies trade execution rules by mandating an automated Order Management System (OMS) for equity orders while allowing exceptions for specific passive or rule-based schemes. The document also updates requirements regarding dedicated dealers and audit trail maintenance for order placement and allocation.
Text
it has been decided to extend the date of applicability of the aforementioned provision to February 1, 2021.
AMCs shall use an automated Order Management System (hereinafter referred to as ‘OMS’), wherein the orders for equity and equity related instruments of each scheme shall be placed by the fund manager(s) of the respective schemes.
The order instructions to such employee by the fund manager shall be through electronic mode i.e. either through e-mail or other electronic utility, wherein schemewise audit trail of such orders starting from the instruction of the fund manager is maintained along with time stamping of each stage of the process.
The employee placing the order shall be bound by the same requirements of maintaining confidentiality and the code of conduct as applicable to the fund manager in this regard i.e. in respect of order placement.
orders in case of arbitrage transactions, stock lending and borrowing transactions, passive schemes (such as Index Funds and ETFs) and schemes investing primarily based on pre-defined rules and models... is not mandated to be placed through OMS
The AMC shall document and demonstrate that no judgement and discretion of the fund manager is required for placement of such orders.
The AMCs shall ensure that orders in breach of applicable regulatory limits and allocation limits as specified in Scheme Information Documents (SIDs), should not be placed and executed.
the fund manager shall provide the schemewise details as required for order placement such as value of transaction(s), nature of transaction(s), etc. to the dealer.
The schemewise audit trail of placement of orders (including the information provided by the fund manager), order execution and trade allocation shall be maintained along with time stamping of each stage of the process.
At all points of time, the responsibility associated with order placement shall continue to vest with the fund manager.
All orders of fund manager(s) shall be received by dedicated dealer(s) responsible for order placement and execution. However, in case of orders for arbitrage transactions, stock lending and borrowing transactions, passive schemes (such as Index Funds and ETFs) and schemes investing primarily based on pre-defined rules and models, the requirement of a dedicated dealer shall not be mandatory.
Audit trail of activities as detailed in paragraph 2.2.1 related to order placement, trade execution and allocation shall be available in the system. Further, there should be time stamping with respect to order placed by fund manager... order placed by dealer, order execution and trade allocation in the OMS.
Source: SecMarx — Circular on Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.