Fidelity may shift base from Hong Kong to India

Fidelity Mutual Fund may be forced to shift its trading desk from Hong Kong to India with the capital market regulator, Sebi, deciding that operations of all local fund houses be based within the country. The Indian asset management subsidiary, as well as the FII arm of Fidelity, run their trading desks in Hong Kong, which also serve as the regional trading centre for the US financial services group.

A Fidelity International spokesperson, in response to an ETquery, said, "TheSecurities and Exchange Board of India guidelines, with this mandate, have appeared recently and we are still reviewing them." The Sebi, in a circular after its board meeting on Thursday, directed local mutual funds registered in India to wind up their operations overseas and bring them back here within one year. "All the operations of a mutual fund, including trading desks, unit holder servicing, and investment operations, shall be based in India," the securities market regulator said.

The Sebi has been planning for some time to direct domestic mutual funds to base their operations in India, said a top mutual fund industry official, familiar with the matter. The circular did not spell out the reason for this decision, but mutual fund officials said the step could bring all domestic mutual fund operations under its radar. "This will allow mutual funds better inspection and keep better track of all the operations of mutual funds. If a mutual fund has operations overseas, this is not possible," said another mutual fund industry official.

The Sebi had shot down requests of two fund houses, which recently set up operations in India, to set up trading desks overseas, said a person familiar with the matter. "Local regulators may run into jurisdiction hurdles if they try to actively track trades that happen abroad," said a person familiar with the change in this policy. The new norm also comes in the wake of a Sebi enquiry into the Fidelity Group's trading operations done in shares of several domestic companies last year.

The Sebi, in its observations that it shared with Fidelity, sought clarity on whether the group has put the interests of its foreign institutional clients ahead of the domestic mutual fund investors. "There were multiple trades happening, such as the FII was buying at a different price and the mutual fund was buying at a different price on the same day. Similarly, they were selling at different prices on the same day," said the person familiar with Sebi's observations.

In response to a questionnaire from ET on the matter, Fidelity said it does not buy or sell stocks as an entity, but has individual portfolio managers for each fund. "There will be times when one portfolio manager may buy a particular stock while another portfolio manager may sell the same stock. No stocks have been bought by different FII entities and/or domestic schemes at different prices at the same time," the Fidelity spokesperson said. "Fidelity has in place stringent systems and processes to prohibit access to information including ensuring that trading orders of different funds are not shared internally, avoid conflicts of interest, ensure best execution and above all to ensure that interests of investors are protected at all times," the response said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/fidelity-may-shift-base-from-hong-kong-to-india/articleshow/9437581.cms