SEBI to regulate index providers

SEBI will now regulate index providers (IPs) like Airawat, BSE, MSCI and NSE.

The market regulator issued SEBI (Index Providers) Regulations, 2024 to provide a regulatory framework for IPs in the securities market to make them more transparent and accountable in governance and administration of indices. 

In 2017, SEBI issued a code of conduct for IPs and expressed concern over possibilities of conflict of interest in the governance of indices. The regulatory authority had also said that conflict of interest could arise if index administrators do not fully implement policies for protection of sensitive information. The new regulations aim to address these issues.  

Here are some key highlights of the regulations:

Registration of IPs

• No entity can act as an index provider without a certificate of registration
• Non-registered entities can continue their operations for maximum 6 months 

Eligibility criteria

• Applicant of IP has to be an entity incorporated under the Companies Act, 2013 or an equivalent legislation
• Applicant must have a minimum net worth of Rs. 25 crores or equivalent 

Oversight committee

• IPs will have to form an oversight committee to govern the aspects of the benchmark determination process. The committee shall consist of subject experts
• The committee should be separate & distinct from the departments dealing with daily index calculation & maintenance

Conflict of interest

• The IP will have to form policies and rules to manage conflict of interest and properly document, implement and enforce them
• These policies also have to specify how sensitive information needs to be protected and the processes for protection of this sensitive information
• They will also specify clearly the trading restrictions and pre-clearance requirements for the relevant personnel dealing with securities impacted by pending index changes

Control framework

• The IP will also put in place a control framework to calculate, maintain and disseminate the index with effective whistle-blowing mechanism in place 

Quality of the index

• The IP will have to consider factors that can result in distortion of the price, rate or value of that index during index design
• The IP will make public the manner in which data is used for calculation & maintenance of the index
• The IP will also encourage market feedback to make changes to the index methodology when required

Accountability mechanism

• IP will form a complaint redressal policy for submission of complaints by subscribers
• IP will ensure an assessment of its adherence to international benchmarks at least once in 2 years to be performed by an independent external auditor
• Every IP will maintain a functional website to publish relevant information and have an official email address
• Every IP will appoint a compliance officer to monitor the compliance of the regulations and report to the board in case of any non-compliance
• SEBI can direct a special audit in exceptional circumstances for the examination of the books of accounts, records and documents relating to an IP