The board of India’s stock market regulator will take up the most sweeping revision of regulations in decades spanning mutual funds, stock brokers and its own officials later this month, two people aware of the meeting’s agenda said. The board will discuss bringing in new rules, updating outdated rules, and removing overlapping ones.
In October, the Securities and Exchange Board of India (Sebi) proposed to cap brokerage and transaction costs that mutual funds charge beyond annual fees collected under their total expense ratio (TER). Sebi also proposed to scrap the additional five basis points charged over the exit load and a more comprehensive disclosure of the TER, which is used to cover management and operating costs.
“Mutual fund regulations and stock broker norms will definitely be part of the Sebi agenda,” one of the two people cited above said on the condition of anonymity. The regulator’s board will meet on 17 December.
A Sebi spokesperson did not respond to Mint’s queries.
The proposed overhaul of mutual fund regulations aims to improve transparency in costs and charges levied by mutual funds; however, the regulator’s October suggestions drew criticism from asset management companies (AMC), who claim lower brokerage will squeeze income, affect research work, and lead to loss of block deals from brokers. Meanwhile, mutual fund distributors worry that AMCs will pass on some of the pain, shrinking their own income.
“If the recommendations on brokerage costs are accepted as it is, then it would have an impact on AMCs. But we are expecting Sebi to come mid-way,” an AMC official said on the condition of anonymity.
Sebi is also expected to overhaul regulations governing stockbrokers, 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 equity markets. Updating that framework would bring much-needed clarity, reduce overlapping or outdated provisions, and lower compliance complexity for intermediaries.
Last month, Sebi chairman Tuhin Kanta Pandey had said that the regulator has begun work on revamping settlement norms, and that a consultation paper is on the way. However, the Sebi board is unlikely to discuss the matter on 17 December.
“The revision is still in preparatory stages, and it might be too early to discuss them in the board meeting,” the person cited above said.
The Sebi board will also discuss the recommendations of a top committee to overhaul its conflict-of-interest and disclosure norms, marking the most comprehensive set of internal reforms at the regulator.
Sebi had formed the committee in March after Hindenburg Research allegations of conflict of interest against Madhabi Puri Buch, who served as Sebi chairperson until February. In August 2024, the US short-seller had claimed that Buch and her husband held undisclosed interests in Bermuda- and Mauritius-based entities that were allegedly linked to the Adani Group, even as Sebi was investigating fraud allegations against the conglomerate. Both the Adani Group and the Buchs rejected the claims.
The Sebi committee proposed that candidates for positions such as chairperson, whole-time members (WTMs) and other lateral hires make full pre-appointment disclosures of any actual, potential or perceived conflicts of interest, while also requiring senior Sebi officials to publicly declare their assets and liabilities, among other measures.
Lawyers expect Sebi to soften some of the proposed norms for its employees. The public disclosure of assets and liabilities has created concerns among Sebi employees that their privacy may be breached.
“The Sebi may consider privacy for its employee disclosures, which is reasonable. Representations from employees on this have already gone to HR. It is possible that they might tame the panel recommendations as it could set a precedent for other regulators/agencies,” said Abhiraj Arora, a partner at Saraf and Partners. “Stock broker regulations will be updated based on technology and current market practices,” he said.