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Kolkata , Aug. 28

THE Securities and Exchange Board of India, in its attempt to study the possibility of development of self-regulatory organisations (SROs) in India, has referred to norms outlined by the International Organisation of Securities Commissions (IOSCO) on the matter.

The global body has worked out some 30 principles for the efficient regulation in securities markets, two of which have been particularly identified by SEBI as relevant. In the first case, IOSCO has felt that a regulatory regime should make appropriate use of SROs that exercise some direct oversight responsibility for their respective areas of competence, and to the extent appropriate, to the size and complexity of the markets.

According to the second principle, SROs should be subject to the supervision of the regulator and should observe standards of fairness and confidentiality when exercising its powers and delegated responsibilities.

A paper circulated by SEBI has noted that the two principles "do communicate that SROs can be developed in the system with the help of market participants to help the main regulator in creating a better manageable, efficient, effective and vibrant market place".

SROs provide certain benefits, the regulator has also pointed out. These stem from the specialised knowledge that they gain, their flexibility in implementation of rules and the lower costs associated with their operations. As for the latter, self-regulation is considered less expensive than statutory regulation.

The paper has discussed a number of other issues pertaining to the formation and working of SROs. Among them is the one related to the nature of controls that SEBI may have over such organisations. The proposal calls for SROs to "essentially work on lines of broad mandate given by SEBI".

An SRO would need to report to it on a regular basis, SEBI has maintained, adding that it would also have the right to take direct action against the office bearers or members. Incidentally, Section 11(2)(d) of the SEBI Act provides that the regulator can take measures such as promoting SROs, while Section 11(2)(i) provides for calling information from and undertaking inspection and audit of SROs.

Potential SROs: The regulator has considered the "way ahead" for existing organisations such as the Association of Mutual Funds in India and Association of Merchant Bankers of India. These outfits would be required to apply to SEBI in line with the norms that are to be worked out if they wished to be recognised as self-regulatory bodies, it is stated.

The SEBI paper assumes significance in view of the opinion that seems to be working in favour of AMFI as an SRO, expressed in certain quarters, particularly investment circles.

The association, which has clearly pointed out that it would remain within the purview of SEBI, has noted that it has already started moving towards a situation where at least distributors of MFs are governed by registration norms.

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