Asian stocks wobble as traders weigh Fed rate pause option Asian stock markets edged lower on Tuesday as economic data showed U.S. services sector unexpectedly softened, reinforcing expectations that the Federal Reserve may skip an interest rate hike when it meets next week. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1% at 514.37. Tokyo’s Nikkei eased 0.22%, while Australia’s S&P/ASX 200 index lost 0.73% ahead of the Reserve Bank of Australia’s (RBA) policy decision later in the day. China shares declined 0.15%, while Hong Kong’s Hang Seng Index was 0.07% lower. Data overnight showed that the U.S. services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Federal Reserve’s fight against inflation. The services industry accounts for more than two-thirds of the U.S. economy. Data on Friday showed U.S. nonfarm payrolls rose by 339,000 jobs in May, but a surge in the unemployment rate to a seven-month high of 3.7% suggested an easing in labour market conditions. Markets are now pricing in a 77% chance of the Fed standing still, a sharp jump from a 36% chance a week earlier, according to CME FedWatch tool. “The tactical risk for equity investors in the very near term is that the Fed indeed skips a meeting and raises rates in July and not June,” said Gary Dugan, CIO of Dalma Capital. “The vibrancy of growth, the debt ceiling as an issue out of the way now, and a slow-moving Fed might just trigger a further rally in equities.” In oil markets, prices eased to give up most the gains from the previous session after the world’s top exporter, Saudi Arabia, said that it would further cut output. U.S. crude fell 0.25% to $71.97 per barrel and Brent was at $76.55, down 0.21% on the day. Saxo strategists said recession concerns, firmer signs of Fed rate cuts or China stimulus measures may be needed to turn sentiment on the energy markets. “Still, risks of a tighter market in second half remain with OPEC focused on ensuring market stability.” In the currency market, the dollar index, which measures greenback against six major peers, eased 0.01%. The yen weakened 0.04% to 139.62 per dollar, while Sterling was last fetching $1.2436, off 0.01% on the day. The Australian dollar eased 0.02% to $0.661 as traders wait for the policy decision from the country’s central bank. “We expect the RBA to leave the cash rate on hold,” analysts at Commonwealth Bank of Australia said in a note. But the decision to raise minimum wage by 5.75% from July 1 increases the risk the RBA hikes the cash rate by 25 basis points, the CBA analysts wrote. In cryptocurrencies, bitcoin was last at $25,657.98, having slid over 5% overnight after the U.S. securities regulator sued crypto exchange Binance, in another blow to the industry.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.