SEBI Proposes Regulatory Framework For Index Providers

Markets watchdog SEBI on Wednesday proposed putting in place an elaborate regulatory framework for index providers as part of efforts to enhance transparency as well as accountability in governance and administration of the indices in the Indian securities market.

In a consultation paper, SEBI said that regulations for index providers should prescribe provisions to ensure inter-alia, eligibility criterion, compliance, disclosures, periodic audits, and penal action in case of non-compliance/ incorrect disclosures.

"The proposed regulation shall be applicable to index providers (both domestic and foreign) if the users of the index/products based on the index are located in India," it said.

According to the regulator, the index provider should be a legal entity incorporated under the Companies Act in the country of origin, and independent professionals—individual or group of persons—providing index/benchmark services should be considered ineligible.

Among other requirements, an index provider should have a minimum net worth of Rs 25 crore.

An index provider should have a track record of a minimum of five years of index administration. Alternatively, any entity may be eligible for registration as an index provider, provided it has in employment at least two persons with each having minimum of five years of experience to conduct the operations and business of the index provider.

"Due diligence on data submitters shall be performed by index providers and a code of conduct for data submitters covering quality, oversight, conflict of interest, record keeping etc," the consultation paper said.

SEBI noted that the index providers should be assessed by independent external auditors to evaluate adherence to IOSCO (International Organization of Securities Commissions) principles once in two years. However, the first assessment should be carried out within one year of the grant of registration, it added.

Stakeholders can submit their comments on the consultation paper till January 27.

In the stock market, an index is essentially a method of measuring a change in the value of a group of securities forming part of such an index. Apart from the broad market indices, there are customised indices, also known as bespoke indices, that are explicitly designed and created at the request of fund managers and tracked by them.