SEBI REGULATORY FRAMEWORK
FOR
SROs (SELF REGULATORY
ORGANISATIONS)
Creation of an SRO
• Divergence of regulator of securities markets
and securities market players.
• Single regulatory body...
Confusions relating to SROs
• In securities markets, SROs are very pervasive and
we feel that this is the way it is done.
...
Organisation of the Discussion
• Part I: History of Self Regulatory Organisations
FINRA

NYSE

• Part II: Special Issues r...
The Blame Game in Securities Market
1.

Something goes wrong in Securities Market

Gov./SEBI blames SROs for Insufficient ...
Functions of SROs
Industry Specialised Knowledge- Direct Market Contact

Industry Motivation- Direct Substantial Involveme...
Regulator & SRO
CREATION OF SRO

MAKING OF RULES

SEBI
REGULATION OF PLAYERS

DEFAULT/DAMAGE

SEBI GAINS CONTROL
Models of SRO
GOVERNMENT
Regulation performed by
public authority.
Exchanges perform very
limited supervision of
their sec...
Issues in SRO Regulation
• The function of statutory regulator (SEBI) should
not transform from oversight to supervision,
...
Compliance Infrastructure
• Every SRO examination must start with a
comprehensive assessment of the “compliance
infrastruc...
SROs in India
• Association of Merchant Bankers in India (AMBI)
• Association of Mutual Funds in India (AFMI)
• Associatio...
The AMFI Dispute
• SEBI sat enormous pressure on AMFI to act as an
SRO.
• SEBI Blamed- walkover from responsibility
• More...
Debatable Questions
• R. 3 (1)- „may make an application‟- why AMFI
dispute?
• R. 5 (1)- „if board is satisfied‟- in pract...
Unique in India
• Stock exchanges are already acting as SROsviolation of R. 5-8, SRO Regulations 2004
• Regulators may get...
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Self regulatory organisations

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Self regulatory organisations

  1. 1. SEBI REGULATORY FRAMEWORK FOR SROs (SELF REGULATORY ORGANISATIONS)
  2. 2. Creation of an SRO • Divergence of regulator of securities markets and securities market players. • Single regulatory body may not be having sufficient measures to regulate the whole market. • Involvement of market participants is considered important; self regulation is preferred and SROs are set up and promoted by the central regulator.
  3. 3. Confusions relating to SROs • In securities markets, SROs are very pervasive and we feel that this is the way it is done. • SROs are not a specific thing. Control by Organisation the members Regulations the over Firms have a choice to become members? Control by members of Organisation Firms are forced to become members? the the 2009 • SROs as term appears to be more illusionary than clear and precise.
  4. 4. Organisation of the Discussion • Part I: History of Self Regulatory Organisations FINRA NYSE • Part II: Special Issues relating to SROs • Part III: SROs in India • Part IV: Problems & Perspectives- SEBI‟s Response
  5. 5. The Blame Game in Securities Market 1. Something goes wrong in Securities Market Gov./SEBI blames SROs for Insufficient Interest Amend laws governing SROs- More control to SEBI Consider doing away with SROs- More Control to SEBI Further amend the laws 6. And Again a Problem in Market!!!!! THE BLAME GAME
  6. 6. Functions of SROs Industry Specialised Knowledge- Direct Market Contact Industry Motivation- Direct Substantial Involvement Contractual Relationship- Efficient Control over Players Transparency & Accountability- Accessibility to Public Flexible Compliance Programs- Responses to changes Coordination & Information Sharing- Better Framework
  7. 7. Regulator & SRO CREATION OF SRO MAKING OF RULES SEBI REGULATION OF PLAYERS DEFAULT/DAMAGE SEBI GAINS CONTROL
  8. 8. Models of SRO GOVERNMENT Regulation performed by public authority. Exchanges perform very limited supervision of their securities markets. LIMITED EXCHANGE Exchange performs certain regulatory functions tied to operation of its market. STRONG EXCHNAGE Exchange performs extensive regulatory functions that extend beyond its market operations. Examples: Examples: Examples: UK- FSA France- AMF US- NYSE Hong Kong- HKEx Sweden- OMX US- CME Brazil- BMS Japan- TSE Australia- ASX
  9. 9. Issues in SRO Regulation • The function of statutory regulator (SEBI) should not transform from oversight to supervision, direction and control. Instead, the statutory regulator should oversee and support. • There should not be any duplication of work between statutory regulator and SRO. MOUs • Relationship of trust & benefit should exist and prevail. • Government‟s oversight should act as an additional level of confidence to SROs.
  10. 10. Compliance Infrastructure • Every SRO examination must start with a comprehensive assessment of the “compliance infrastructure” • Corporate governance • Supervision policies and procedures • Compliance policies and procedures • Risk management systems • Capital calculation and monitoring • Internal controls • SROs should spell out: • Key principles that apply • Minimum standards in each area –compulsory • Guidance on best practices in each area – voluntary
  11. 11. SROs in India • Association of Merchant Bankers in India (AMBI) • Association of Mutual Funds in India (AFMI) • Association of Custodial Agencies in India (ACAI) • Registrars Association of India (RAIN)
  12. 12. The AMFI Dispute • SEBI sat enormous pressure on AMFI to act as an SRO. • SEBI Blamed- walkover from responsibility • More stringent regulation by SEBI was needed. • Chiefs of large mutual funds head committees of AMFI; they will form a cartel- ignored by SEBI • This recognises a „conflict of interest‟- the same that SROs are designed to pull off. • SEBI happily lists AMFI as an SRO instead!!!!
  13. 13. Debatable Questions • R. 3 (1)- „may make an application‟- why AMFI dispute? • R. 5 (1)- „if board is satisfied‟- in practical, the board is „forcing‟ • Articles could not be amended by SRO- strong supervision of statutory regulator • R. 15 (1)- governing norms to made by prior approval of SEBI- what is then „self regulatory‟? • R. 15 (4)- SEBI may order rule to be revokedover-interference defaces the concept of SRO
  14. 14. Unique in India • Stock exchanges are already acting as SROsviolation of R. 5-8, SRO Regulations 2004 • Regulators may get representation in SROs- Mar 30, 2007 (Business Standard)- situation of „cross-regulation‟-‟conflict of interest‟ • PM Regulations (1993) already in force-Draft Investment Advisers Regulation (2007) in handSEBI pressurizes for SRO for investment advisers- „Self regulated or self regulatory‟ ? • Duplication of work by SEBI appears to be its prestige. AND MANY MORE…………
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