Capital market regulator, the Securities and Exchange Board of India (Sebi) has mooted the idea of having a code of conduct for investors’ associations. At present, these associations are just recognised by Sebi. In fact, the regulator has recognised 22 such associations throughout the country so far.
Investors’ associations are supposed to guard the interests of small investors and represent their case in policy-making or debate forums. Last week, Sebi had called a meeting of investors’ associations in Mumbai in which the issue of preparing a code of conduct for them was raised. Sebi said that a committee of representatives from the investors’ association would be set up and that a Sebi official will assist the committee.
The issue came up after there were complaints about some associations taking the side of corporates and about the political connections enjoyed by a few of these associations. When contacted, Dr G S Sood, president of the Society for Consumers’ and Investors’ Protection, said that “...there is a need for formulating code of conduct for investors' associations.” However, in the meeting convened by Sebi last week, some associations were averse to the idea of having a code of conduct for them. Dr Sood opined that “...NGOs that are promoting the cause of investors' interest need to be made powerful. Then only investor activism will prosper.”
While Sebi is yet to announce a formation of the committee, it has made clear the need to make such associations more accountable and responsible. Most of these associations are facing a fund crunch and they have demanded that the regulator should provide funding to those who follow proper governance. Running an NGO-like investors’ association dedicated for protecting investors’ interests requires technical knowledge of various securities laws, apart from expenses to run the organisation.
Recently, Sebi had decided that it can use money from the investors’ protection fund (IPF) to help such associations fight legal cases and that even allocations can be made to the associations for programmes aimed at educating investors. But some of the associations felt that such funding is not regular. A suggestion was also made that investors’ associations must have a code for internal governance too. Another point raised was that, while following the proposed code, there should be freedom to criticise the regulator whenever necessary. "Also, the associations feel that, while Sebi is recognising a few of them, their complaints have not been taken up seriously by the regulator," an official of one of the associations said.
The proposed code is expected to cover various issues, including disclosure of funding sources from corporate or any Sebi-recognised intermediaries and interests of the office bearers of such associations.