Sebi paper moots rating for intermediaries

The Securities and Exchange Board of India has put out a concept paper on rating of market intermediaries, such as brokers, to provide necessary information to compare intermediaries.

The Market Intermediaries Regulation and Supervision Department, Division of Policy and Supervision of Sebi has said in its draft paper that rating is expected to spur growth of professionally managed entities as business development and opportunities would result from such an exercise and investors interest may gain more importance as this would be a factor to be considered while taking a rating decision.

The rating would be based on well-defined parameters and done by rating agencies registered under Sebi. Such agencies would be required to develop suitable rating process, methodology and parameters in this regard. Rating parameters are expected to cover the entire process flow and operations of the rated entities so as to take a holistic view while awarding a particular rating.

The concept paper has said that the rating may be optional and mandatory on an entity. "It is felt that the demand for the product should come from the market itself instead of any imposed obligation on the intermediaries to go for it. Further with the relative maturity of the markets and self imposed code of discipline, which arises out of such maturity, the demand for product is expected to rise as more and more intermediaries would like to get themselves rated and measured, both for internal evaluation and introspection and for giving an insight into its affairs to the outside world and for marketing its services," the paper said.

The rating methodology would cover the organisation structure, risk management, policy and system, policy on investor interest, organization process and procedures, management policy on compliance, the financials of the entity, its background, the firm's positioning among others.

According to the paper, ratings should invariably cover all the memberships of the entity so as to present a holistic picture.

If the entity is also registered as an intermediary in other capacities, suitable rating exercise may need to be carried out to measure the overall level of performance across different activities.