Sep 14, 2004
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Informal Guidance
Investment Management Department
IMD/PSP/20642/04
September 14, 2004
M/s HDFC Asset Management Company Ltd.
Ramon House, 3rd Floor, H.T. Parekh Marg,
169, Backbay Reclamation, Churchgate,
Mumbai 400 020
Dear Sirs ,
Sub : Informal Guidance sought by you regarding the interpretation of the provisions of SEBI (Insider Trading) (Amendment) Regulations, 2002.
In the captioned matter, you have given the information as under :
- HDFC Mutual Fund (HMF) is presently managing 19 mutual fund schemes. Some of the schemes are equity oriented schemes, which primarily invest/hold equity shares in listed companies. The holdings of some of these equity schemes are beyond the threshold limit of 5%.
- On a given day, in the course of trading by some of these schemes which results in a change in the shareholding of these individual schemes, it is to be noted that such changes of the respective schemes do not effect the shareholding of the mutual fund, which either remains constant or even reduces to the holding already disclosed to the said companies. The same has been illustrated by you as under :
"The Holding of the HDFC Mutual Fund in Company X Ltd. is 5.93% while HDFC Equity Fund (A individual scheme) sells 250,000 shares of this Company, constituting 1.5% of its capital. HDFC Prudence Fund (another individual Scheme) acquires the same number of shares. The net effect of this transaction to the Fund would remain the same, while the individual transactions of Sale by HDFC Equity Fund (1.5%) and purchase by HDFC Prudence Fund (1.5%) together totals to 3.00%".
- In compliance with Regulation 13(3) of the Securities and Exchange Board of India (Insider Trading) (Amendment) Regulations, 2002, necessary disclosure is made to the Company and the Stock Exchanges where the Shares of the Company are listed.
On these facts, you had sought an interpretive letter on the following questions :
- Does this attract the provisions of regulation 13(3) of SEBI Insider Trading Amendment Regulations, 2002?
- In view of the net effect of this transaction of the Mutual Fund being Nil., no disclosure on the change in the shareholding interse the schemes is required.
- The 5% threshold limit – for informing the companies – is to be complied with when a particular scheme holding exceeds that limit or when the sum total of all scheme holdings in a particular scheme holdings in a particular company exceeds that limit or on both?
Views on your request for informal guidance are communicated as follows –
The provisions of regulation 13(3) of SEBI Insider Trading Amendment Regulations, 2002 say that any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been a change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in the company.
In case of mutual funds, the legal entity consists of a sponsor, the trustees and the Asset Management Company. Under Chapter II of the SEBI (Mutual Funds) Regulations, 1996, the Mutual Fund has to get registered with SEBI. There is no information required to be given of any schemes in the Form A for registration. Individual schemes are launched by the AMC with the approval of the Trustees in accordance with Chapter V of the SEBI (Mutual Funds) Regulations, 1996. There is no indication to the effect that the individual scheme is a separate legal personality. All provision in the said regulations referring to individual schemes are in the nature of obligations of the AMC in respect of each scheme and do not contemplate the scheme as a separate person. Therefore, the 5% threshold limit-for informing the companies-is to be complied with when the sum total of all scheme holdings in a particular company exceeds the aforesaid limit.
In view of the above, the provisions of Regulation 13(3) shall be attracted only if all scheme holdings of HDFC Mutual Fund in a particular company is 5% or more, and if a change occurs which results in shareholding falling below 5%, if the change in holding from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in the company. In case, the net effect of the transaction of the Mutual Fund is nil, no disclosure on the change in the shareholding interse is required.
It is also to be noted that the 5% threshold limit-for informing the companies-is to be complied with when the sum total of all scheme holdings in a particular scheme holdings in a particular company exceeds the aforesaid limit.
This letter is based on the representation made by you in your letter. Different facts or conditions might require a different result. This letter expresses the position on enforcement action only. It does not express decision of the Board on the Questions presented.
Yours faithfully,
Authorised Signatory