Global shares turn higher, stemming rout; bond yields rise Global shares turned higher on Tuesday, stemming a five-session rout after key US data met expectations and bolstered bets of a smaller interest rate hike by the Federal Reserve at its next meeting. Euro zone yields jumped amid a shifting rate outlook, with markets betting central banks would soften their policy stance as they assess financial stability risks. Gold prices dipped. US Treasury yields moderately extended gains following the inflation data, indicating some expectation the Fed could continue to raise rates but at a gradual pace. The MSCI All-World index reversed earlier losses, and was up 1% by 10:48 a.m. EDT (1448 GMT), on track to gain for the first in six sessions. The Dow Jones Industrial Average rose 419.87 points, or 1.32%, to 32,239.01, the gained 71.32 points, or 1.85%, to 3,927.08 and the gained 240.82 points, or 2.12%, to 11,425.84. Also read: Divi’s Laboratories, Page Industries among 207 NSE stocks to touch 52-week lows; 12 hit 52-week highs European shares snapped a two-day plunge, jumping 1.57%. As recently as a week ago, investors were just recovering from a reality-check that prompted many to assume rates around the world were likely to head much higher and stay there for longer than previously expected. In under a week, three US banks have collapsed. It has been the failure of technology-sector lender Silicon Valley Bank (SVB) that has rattled investor confidence and triggered a rush into safe-haven assets like bonds and gold. Moody’s Investors Service on Tuesday said it had changed its outlook on the US banking system to negative to “reflect the rapid deterioration in the operating environment”. Banking stocks around the world have shed hundreds of billions of dollars in value in a matter of days, while the government bond market has seen one of its biggest rallies in decades. The yield on benchmark 10-year Treasury notes rose to 3.6663% compared with its US close of 3.515% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 4.3571% compared with a US close of 4.03%, but was still at levels not seen for six months before Monday’s largest one-day drop since 1987. “The Federal Reserve is going to have to pick its poison -tolerate some inflation for a bit to see if its current series of rate hikes takes hold and pause or keep hiking and deal with the financial instability caused by their own policy decisions,” Jamie Cox, Managing Partner for Harris Financial Group in Richmond, Virginia, said following the CPI data. Many have drawn parallels to the 2008 financial crisis, when indicators of financial market stress shot up and equities crumbled. But Societe Generale chief currency strategist Kit Juckes said the current situation was far more like the US savings and loans crisis of the 1980s, in which hundreds of smaller banks folded when the Federal Reserve jacked up interest rates to control inflation. SVB, which was the 16th biggest US bank at the end of last year, is the largest lender to fail since 2008. Specifics of the tech-focused bank’s abrupt collapse are still something of a jumble, but the sharp rise in Fed rates in the last year, which tightened financial conditions in the startup space in which it was a notable player, seemed front and centre. “I don’t think this is a systemic global banking issue. If it’s an issue, it’s an issue of a smaller but less-regulated bank that has been growing very fast on the back of being less regulated in a stable environment that has turned nasty,” Juckes said. Overnight the VIX volatility index, nicknamed Wall Street’s “fear gauge”, neared six-month highs and other indicators of market stress showed early signs of strain. An index of bond market volatility – the ICE BofA MOVE index – had hit a 14-year high by Monday’s close. Yields on government bonds from the US to Germany and Japan have dived in the last week. German two-year yields, which fell by the most at least since reunification in 1990, while Japanese yields have fallen by the most in decades. Also read: Interest rate hike near certain; 2nd inflation shock dashes hope of pause, may push RBI into policy tightening Elsewhere, the US dollar benchmark gained after seeing a large decline over the last week amid the dramatic re-pricing of US rate expectations. Gold’s safe-haven rally dried up on Tuesday in the face of higher Treasury yields. Spot gold was down 0.37%. US gold futures also dropped. Oil prices fell more than $2 a barrel. The global benchmark last down about 1%.
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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.
Also read: Adani shares continue fall amid MSCI review
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.