SEBI has changed ‘key employees’ to ‘designated employees’ in its new circular.
New Delhi: Markets regulator Sebi on Monday clarified its ‘skin-in-the-game’ rules issued earlier in the end of April this year. Under the new norms for junior employees, the provision may be implemented in a phased manner. The new rules will come into effect from October 1 this year. According to the new SEBI circular, 10% of the compensation of junior employees in the first year will be invested in mutual funds of the fund house (October 1, 2021 to September 30, 2022); 15% in the second year of implementation (October 1, 2022 to September 30, 2023) and 20% in the third year (from October 1, 2023 onwards).
who are these junior employees
SEBI said that employees who are below 35 years of age and who are not Chief Executive Officers (CEOs), Heads of any Department and Fund Managers.
CEOs, heads of any departments and fund managers are required to invest 20% of their salary in mutual fund units with effect from October 1, 2021 and for a lock-in period of three years.
“Investment in the units of the scheme will be made on the day of payment of salary,” Sebi said.
“All non-cash benefits and allowances shall be included in the CTC (Cost-to-Company) on the value of perquisites as per Form 16 under the Income Tax Act, 1961. However, retirement benefits and gratuity or retirement benefits paid at the time of death, will not be included in the CTC,” it added.
Terms changed by SEBI
SEBI in its new circular changed ‘Key Employees’ to ‘Designated Employees’ and ‘Pay as Units’ as ‘Compulsory Investments in Units’.
‘set off’ clause
“Designated employees can set off their existing investment as on April 28, 2021 against the required fresh investment in the same schemes,” SEBI said.
They “can wind up their units for which the required lock-in period of 3 years has expired, against fresh investments to be made in the same schemes as per the provisions of the April circular. In such cases, the asset management company ( AMC) shall ensure that such units are closed for a period of 3 years or the tenure of the scheme, whichever is less.
After the expiry of the mandatory lock-in period, the designated employees can redeem their units in open-ended schemes twice in a financial year, with the prior approval of the Compliance Officer, it further said.
clawback rule
The units allotted to ‘Designated Employees’ will be subject to clawback in case of gross violation of the code of conduct prescribed by SEBI or fraud or gross negligence by them.
Each scheme will disclose the compensation paid in the form of units to the ‘designated employees’ on the website of the AMC.
what is skin-in-the-game
The term used here for the new rules is derived from the derby race; And in financial terms, this means that if people have skin in the game, preventable costs usually fail. Statistician and former options trader Nasim Nicholas Taleb also wrote a book titled ‘Skin in the Game: Hidden Asymmetries in Daily Life’.
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