Sebi reviews intermediary norms after 15yrs

After a gap of 15 years, the Securities and Exchange Board of India (Sebi) proposes to tighten the eligibility norms for registration of stock market intermediaries such as merchant bankers, registrars to market issue, brokers and custodians, among others, to bring them in sync with changes in regulatory norms.

Sources close to the developments said though the regulator had not finalised the proposals, the areas that would change were capital requirement for such intermediaries, their disclosure norms, credentials of promoters and tighter regulatory monitoring.

Sources explained that the norms would make the entry of new players more stringent, but existing ones might be given time to graduate to the new criteria. The review had just begun and would be finalised before SEBI issues its proposed master circular for all rules and regulations in another six months, said sources.

Sebi's objective is to create one set of master guidelines for eligibility of these market intermediaries for registration. However, the master copy would also contain different chapters for criteria and conditions applicable specifically for particular sets of intermediaries, sources said. The common guidelines may include code of conducts, procedure for inspection of books and so on.

Sebi is reviewing eligibility guidelines because it thinks the current ones are dated and do not fit with current requirements since regulations for the stock market participants like banks, financial institutions have changed significantly. For instance, size and capital requirement for market intermediaries are very low in the current guidelines.

Meanwhile, Sebi will be relaxing the norms for the listing of the small and medium companies on the proposed SME exchange.

This will be announced when final guidelines will be issued for setting up SME exchanges.

Two significant areas that will be relaxed include reducing the net worth requirement of the companies and track record of profitability. Currently, a company needs a net worth of at least of Rs 10 crore for listing and a minimum track record of consistent profitability for three years.

While a decision is yet to be taken on the structure of the exchange, the National Stock Exchange, OTCEI and others have evinced interest in setting it up.

The exchange could be either set up as a standalone entity or a consortium of exchanges.