Tuesday, Dec 15, 2020

By Rajesh Gajra

Domestic equity market indices such as the Nifty 50 and the Sensex serve as benchmarks for a wide section of equity investors. As market performance indicators, a lot rides on the indices for all investors, not just for equity index funds and index exchange traded funds.

In this context, a consultation paper on compliance standards for index providers, put up for public comments by the Securities and Exchange Board of India last week, is timely and welcome. The paper aims to increase index reliability and the efficacy of representation of an index through compliance with the financial benchmark principles of International Organization of Securities Commissions.

International Organization of Securities Commissions' benchmark principles emphasise the risks stemming from conflict of interest in the index administration process. Conflict of interest, according to it, can take place if the index determination process involves market participants with stakes in the level of the benchmarks.

The fact that doubt has emerged over the nature of inclusion and index methodologies for major indices in the last couple of years makes SEBI's consultation paper timely.

There have been questions on conflict of interest involved in the administration of indices by stock exchanges.

The National Stock Exchange owns 100% stake in index company NSE Indices, which in turn administers the Nifty indices and decides on the index methodology of these indices in consultation with market participants.

BSE has a 50-50 joint venture with S&P Dow Jones through index company Asia Index, which administers the S&P BSE Sensex and other BSE indices.

Globally, it is not unusual for stock exchange groups to have index companies within the group. Intercontinental Exchange, for instance, operates NYSE in the US and other financial market exchanges in Europe.

At the same time, the ICE Group owns an index company that administers various market indices, primarily in the debt market space. The ICE Group discloses potential conflict of interest and claims that the index company maintains arm's-length commercial terms in its dealings with group entities. Its index company keeps its staff physically and logically separate from other staff and functions of the group.

The best practices in developed markets can be emulated.

For an exchange, conflict of interest arises because it has a regulatory role and commercial interests too. Conflict of interest does not mean those responsible for self-regulation will not abide by them. But as exchanges are part of the fiduciary responsibility ecosystem in financial markets, they must also be seen as above reproach.

Index companies that are part of a stock exchange group or a corporate group with operations in the securities market must have their managements, staff and offices at an arm's length from parent companies.

Also, most directors on the boards of index companies must be independent directors.

So far, SEBI has governed specific issues on indices through sporadic circulars. A separate set of regulations, similar to the ones on credit rating companies, may be a better idea.

LATEST ANNOUNCEMENTS

* SEBI defers T+1 settlement plan after opposition from foreign investors (BS)

* SEBI floats consultation paper on compliance for index providers

* SEBI seeks comments on compliance standards for index providers     

* SEBI extends deadline for views on public shareholding norms to Dec 24 

ORDERS, ADJUDICATION PROCEEDINGS

* SAT stays SEBI's 60-mln-rupee penalty on National Stock Exchange (ET)

* SEBI fines Divi's Labs assistant general manager for insider trading

* SEBI bars Minance Technologies, 3 others for unregistered portfolio management activities (PTI)

* Sahara files contempt petition in Supreme Court against regulator SEBI (IANS)

REGULATIONS (Announced in the past three months)

* SEBI prescribes timeline to assess covenant by debenture trustees 

* SEBI doubles limit for overseas invest by each MF house to $600 mln

* SEBI announces norms for rights issue of units by unlisted InVITs

* SEBI asks MFs to hold 10% of debt funds' assets in liquid debt

DATA FROM SEBI

IPO/FPO/NFO

* Antony Waste Cell refiles draft offer papers 

* Axis Mutual Fund seeks SEBI's approval for healthcare ETF

* Heranba Ind gets SEBI's approval for public offer

* Mrs Bectors gets SEBI nod for 5.5-bln-rupee public offer 

SEBI IN NEWS

* SEBI forms new department to check promoter frauds (BL)

* SEBI moots easing norms for start-ups to list on exchanges 

* Promoter of Dewan Housing Kapil Wadhawan writes to SEBI, RBI against 63 Moons Tech (PTI)

* SEBI questions BSE on Future-RIL deal OK despite complaints (Mint)

Sources - Television, Print, or Web Editions of: PTI--Press Trust of India, BS--Business Standard, ET--The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL--The Hindu Business Line, TH--The Hindu, RTR—Reuters, BT--Business Today, IANS--Indo-Asian News Service, IE— The Indian Express, ToI--The Times of India, BB-Bloomberg Quint

Internet links: http://www.sebi.gov.in

#--data not available for Dec 11 

End

Compiled by Vijay Malkar

Edited by Avishek Dutta

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