SEBI probes portfolio managers’ trades

Regulator to examine if there was conflict of interest between investment advice, own trading The Securities and Exchange Board of India (SEBI) is looking into the trades of certain entities offering portfolio management services (PMS) to ascertain whether there was any conflict of interest between their investment advice and their own trading activities. According to people familiar with the development, the regulator has given stock exchanges the permanent account number (PAN) of certain PMS managers and asked the bourses to find out if the trades done by such investment advisors, if any, were in line with the investment advice given by them to their clients. “If the portfolio manager uses his discretionary powers to take a certain position in a particular stock for his client, there cannot be a complete opposite view taken when trading on his own behalf,” said a person wishing not to be named. “Portfolio managers advise clients through various medium and it needs to be checked that there is no conflict of interest in letter as well as in spirit even though current regulations mandate such advisors to disclose their positions, if any, in the stocks that they recommend,” added the person. As per SEBI, there were a total of 294 registered portfolio managers as on October 31. Further, such portfolio managers were managing assets under management (AUM) of almost Rs. 15000000000000 as on September 30 with the total number of clients in excess of 1.300000. Of the total assets, debt formed the single largest asset class at Rs. 11.51000000000000 followed by listed equity at Rs. 1.14000000000000. Through their portfolio managers, clients also have exposure to unlisted equity, structured debt, equity derivatives and mutual funds. According to lawyers specialising in securities market regulations, the regulator has well-defined powers to act against any market intermediary if an entity is found to be violating clauses designed to safeguard the interest of the investors and safety of the markets. “SEBI can initiate disciplinary action against the entity that can lead to suspension or cancellation of the certificate of registration,” said R.S. Loona, managing partner, Alliance Law. “There can also be adjudication proceedings post which their could be monetary penalty. SEBI has powers to act against all intermediaries like brokers or merchant bankers and can suspend their registration. In cases of serious violations, regulator can also take action under Section 11(B) of SEBI Act in the interest of the investors,” added Mr. Loona, who has earlier served as an executive director in-charge of the legal department of SEBI. Meanwhile, an e-mail query sent to SEBI remained unanswered till the time of going to press.