Amend SCRR before allowing insurers as members: Irda

The Securities and Exchange Board of India (Sebi) should amend the Securities Contracts Regulation Rules (SCRR) before it allows insurance companies to participate as 'proprietary trading members' in the debt segment, according to the insurance regulator.

Recently, Insurance Regulatory and Development Authority (Irda) had made a written communication to the government stating it's ready to allow insurers provided the SCRR 1957 is amended, officials with the insurance regulator said.

In the initial phase, officials had expressed some concerns about allowing insurers to become trading members on the newly-proposed debt segment on the stock exchanges, on account of the fact that it may risk policyholders 'money. A senior Sebi official had earlier said the talks with Irda were still on and there was hope that insurance companies would be allowed to become trading members.

According to the SCRR, a company as defined in the Companies Act, 1956 (1 of 1956), shall be eligible to be elected as a member of a stock exchange if it is formed in compliance with the provisions of section 322 of the said Act. A majority of the directors of such a company are shareholders of the company and also members of that stock exchange; and the directors of such company, who are members of that stock exchange, have ultimate liability in such a company.

The SCRR rules further state that provided Sebi makes a recommendation in this regard, the governing body of a stock exchange shall, in relaxation of the requirements of this clause, admit institutions like Life Insurance Corporation of India and General Insurance Corporation of India as members.

"At present, we do not have any objection to insurers participating in the debt segment of stock exchanges. But Sebi will need to make appropriate changes in their rules so that all insurers can become members," an Irda official said.

A Sebi official said the SCRR might not be required to be amended as under Rule 8(4A) any insurance company registered under the Companies Act can become a trading member of a stock exchange.

Sebi's move to start a separate debt segment on the stock exchanges, just like derivatives or currency, is aimed at developing the corporate bond market.

In his Budget speech, Finance Minister P Chidambaram had said that to create a complete market, insurance companies, provident funds and pension funds would be permitted to trade directly in the debt segment with the approval of the sectoral regulator.