Why in news? SEBI to regulate a framework for index providers, aimed at improving transparency and accountability in governance and administration of the financial benchmarks or indices in the domestic securities market.
What is an Index?
- In the stock market, an index is essentially a method of measuring a change in value of a group of securities forming part of such an index.
- It performs several functions such as assisting the investors in understanding the health of the market and also enabling them to study the market sentiment, enabling performance measurement and benchmarking.
- The index provider shall be a legal entity incorporated under Companies Act in the country of origin and should have a minimum net worth of Rs 25 crore.
Who are regulated under this framework?
- Regulation shall be applicable to index providers (both domestic and foreign) if the users of the index/products based on index are located in India.
How will framework work ?
- Under the framework, the index providers offering indices for use in India will be required to register with SEBI for obtaining authorization for introduction of indices in the country.
- The index provider will have to constitute an oversight committee for reviewing existing index design.
- The committee will also review any proposed changes to benchmark methodology.
- The regulations said the index provider must have policies and procedures to manage conflicts of interest and to protect the integrity and independence of various functions performed in connection with determination of indices.
- In case an index provider is engaged in any other activity, the activity of index process in particular must be completely ring-fenced to prevent sharing or leakage of any sensitive information.
- Index provider must document and make available publicly, the methodology for index calculation.
- The index providers must be assessed by independent external auditors to evaluate adherence to International Organization of Securities Commissions (IOSCO) principles once in two years, as per the proposed regulations