The board of India’s stock market regulator will carry out its biggest review of regulations in decades involving mutual funds, stockbrokers and its own officials later this month, two people familiar with the meeting agenda said. The board will discuss introducing new rules, updating outdated rules, and removing overlapping rules.
In October, the Securities and Exchange Board of India (Sebi) proposed capping brokerage and transaction costs charged by mutual funds over and above the annual fees charged under their Total Expense Ratio (TER). Sebi has also proposed scrapping the additional five basis points charged on exit loads and more comprehensive disclosure of the TER, which is used to cover administrative and operational costs.
“Mutual fund regulations and norms for stockbrokers will definitely be part of Sebi’s agenda,” one of the two people cited above said on condition of anonymity. The regulator’s board will meet on December 17.
A Sebi spokesperson did not respond to Mint’s queries.
The aim of the proposed revision of the regulations on mutual funds is to improve the transparency of costs and fees collected by mutual funds; however, the regulator’s October proposals have drawn criticism from asset management companies (AMCs), which say lower brokerage will reduce income, affect research work and lead to the loss of block trades from brokers. Meanwhile, mutual fund distributors fear that AMCs will pass on some of the pain and reduce their own income.
“If the brokerage cost recommendations are accepted as they are, then it would impact AMC. But we expect Sebi to come midway,” an AMC official said on condition of anonymity.
Sebi is also expected to overhaul regulations for securities traders, the people cited above said, formalizing definitions for algorithmic and proprietary trading, streamlining rules that date back to 1992. Many of these regulations do not reflect the boom in electronic, high-frequency and algorithmic trading that now dominates stock markets. Updating this framework would bring much-needed clarity, reduce overlapping or outdated provisions, and reduce compliance complexity for intermediaries.
Last month, Sebi chairman Tuhin Kanta Pandey said the regulator had started work on redrafting settlement norms and that a consultation paper was on the way. However, the Sebi board is unlikely to discuss the matter on December 17.
“The review is still in the preparatory stages and it may be too early to discuss them at the board meeting,” the person quoted above said.
Sebi’s board will also discuss the apex committee’s recommendations to overhaul its conflict of interest and disclosure norms, which will be the most comprehensive set of internal reforms at the regulator.
Sebi formed the committee in March after Hindenburg Research accused Madhabi Puri Buch, who served as Sebi chairman till February, of conflict of interest. In August 2024, a US short seller alleged that Buch and her husband had undisclosed interests in entities based in Bermuda and Mauritius that were allegedly linked to the Adani Group, even as Sebi investigated fraud allegations against the conglomerate. Both the Adani Group and Buchs have denied the claims.
The Sebi committee suggested that candidates for positions such as chairman, whole-time members (WTM) and other side hires should disclose any actual, potential or perceived conflicts of interest before appointment, while requiring senior Sebi officials to publicly declare their assets and liabilities, among other things.
Lawyers expect Sebi to relax some of the proposed norms for its employees. The disclosure of assets and liabilities has raised concerns among Sebi employees that their privacy may be breached.
“Sebi may consider privacy while disclosing information about its employees, which is reasonable. The feedback of employees on this matter has already been conveyed to HR. It is possible that they may tame the panel’s recommendation as it may set a precedent for other regulators/agencies,” said Abhiraj Arora, partner at Saraf and Partners. “Stock broker regulations will be updated based on technology and current market practices,” he said.
