Markets regulator Sebi Monday proposed amendments to norms governing Self Regulatory Organisations, including recognising such entities on a nomination basis.
Coming out with a consultation paper, the watchdog said that an SRO would be defined as an organisation of intermediaries or an entity promoted by a stock exchange, recognised by the board.
A Self Regulatory Organisation (SRO) is considered as the first level regulator.
"As per the proposed process, instead of inviting applications, Sebi would recognise an entity as an SRO on nomination basis, after conducting due diligence," the regulator said.
Sebi proposes to constitute a nomination committee to consider and give recommendation to the regulator regarding the suitability of an organisation or entity to be recognised as an SRO.
The committee will comprise external experts and will preferably be headed by a retired judge of a High Court or Supreme Court.
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Sebi also said the recognition of an SRO may be on permanent basis subject to certain conditions.
The paper further suggested that a governing board may consist of elected representatives of members of SRO public interest directors nominated by Sebi and shareholder directors.
The general superintendence, direction and management of the affairs of the SRO will vest in the board and its creation, composition and functions will be specified by Sebi from time to time, it added.
The SRO shall provide for a dispute resolution mechanism including arbitration to settle disputes between investors and its members and disputes between its members.
Besides, the SRO of distributors of MF products shall not handle disputes between the distributors and the MFs. They shall continue to be governed under their contractual arrangements.
Among other criteria, eligibility criteria for an entity to be recognised as an SRO includes that its minimum net worth shall be Rs 1 crore.
The paper was floated after Sebi initiated process of selection of SRO for distributors of MF products and got nod from the Supreme Court to amend SRO norms that included recognising a company as an SRO, without calling for applications after considering its experience and capability.
Currently, SRO regulations are in force only in relation to distributors engaged by asset management companies of mutual funds (MFs) and distributors engaged by portfolio managers.
Sebi has sought comments from the public on the consultation paper latest by April 21.