Capital market regulator SEBI has proposed to nominate self-regulatory organisations (SROs) after conducting due diligence instead of inviting applications.
In a consultation paper issued on Monday, SEBI said the recognition granted to an SRO will be on permanent basis and it will be an intermediary organisation or an entity promoted by a stock exchange.
SEBI has sought public comments on whether there should be a single or multiple SROs for different classes of regulations and on whether there is a need to enhance their net worth from ₹1 crore. Comments on this subject should reach SEBI by April 21, it said.
SROs will regulate market intermediaries and would be an extension of the regulatory authority of SEBI. Its role includes regulatory (related to grievance redressal) and dispute resolution, besides taking disciplinary actions.
On the process of SRO recognition, SEBI has proposed to constitute a Nomination Committee headed by the retired judges of High Court and the Supreme Court. The committee may also consider the pending cases, as directed by the Supreme Court in its order of last November, said SEBI.
Governing board
The market regulator has also proposed to set up a governing board consisting of elected representatives of members of SROs including regulated entities such as distributors of mutual fund products and investment advisors, SEBI-nominated public interest directors and shareholder-directors.
The chairman of the governing board with voting rights will be elected by the governing board from amongst public interest directors. The governing board will give directions and manage the affairs of the SRO. The board will also appoint a CEO and managing director who will be responsible for the daily affairs of the SRO.
The governing board will constitute Disciplinary Committee and Arbitration Committee, among others. The creation, composition and functions of such committees shall be specified by SEBI.
The governing board of SROs of mutual fund distributors and investment advisors will comprise 25 per cent of shareholder-directors, 25 per cent of elected representatives, and 50 per cent of public interest directors.
SEBI will approve appointment and removal of all directors including the CEO and managing director. The SRO of MF distributors will not handle disputes between the distributors and the mutual funds.