SEBI Proposes Regulatory Framework for Major Market Indices
The Securities and Exchange Board of India (SEBI) took a significant step on Monday. It floated a proposal to introduce a new regulatory framework for 'Significant Indices'. This move aims to strengthen governance standards and improve transparency among index providers in the securities market.
Defining 'Significant Indices'
In a consultation paper, SEBI clearly defined what constitutes a 'Significant Index'. The regulator stated that these are indices administered by an index provider. They must be used as benchmarks by domestic mutual fund schemes with a cumulative assets under management (AUM) exceeding Rs 20,000 crore.
The threshold for this classification will be determined based on a specific calculation. SEBI will use the daily average AUM of such schemes over the preceding six months. This assessment will occur twice a year, ending on June 30 and December 31.
How AUM Will Be Apportioned
SEBI provided detailed guidelines for complex scenarios. Where a mutual fund scheme tracks more than one index, the scheme's total AUM will be apportioned proportionately across all relevant indices. This ensures a fair assessment.
In the case of an "index of indices", the calculation becomes more layered. The AUM of the underlying indices will be factored into the total. Their respective weights within the composite index will determine their contribution to the threshold.
Goals of the Proposed Framework
The market regulator emphasized the critical role of financial benchmarks. SEBI said the proposed framework is designed with clear objectives. It intends to enhance transparency, accountability, and robustness in the governance of these benchmarks. These indices play a vital role in the capital markets ecosystem, influencing investment decisions and fund performance.
Registration Requirements and Exemptions
Under the new proposal, providers of identified Significant Indices will face a new obligation. They will be required to apply for registration as official index providers with SEBI. This application must be submitted within six months of the issuance of a formal SEBI circular announcing the rules.
However, SEBI has carved out an important exemption. This registration requirement will not apply to all index providers. Those whose significant indices are already regulated by the Reserve Bank of India (RBI) will be exempt from this SEBI mandate.
Grievance Redressal Mechanism
The regulator also outlined the scope of its proposed oversight. The formal grievance redressal mechanism would apply specifically to Significant Indices. Crucially, this mechanism would only cover indices offered by providers who are registered with SEBI under the new framework.
Next Steps and Public Consultation
SEBI has opened the proposal for public feedback. The market regulator has invited comments and suggestions from all stakeholders on the consultation paper. The deadline for submitting these comments is January 30.
After reviewing the public input, SEBI will analyze the feedback. The regulator will then take a final view on the proposed regulatory framework for Significant Indices. This decision will shape the future governance of major benchmarks in India's financial markets.
