1. SEBI REGULATORY FRAMEWORK
FOR
SROs (SELF REGULATORY
ORGANISATIONS)

2. Creation of an SRO
• Divergence of regulator of securities markets
and securities market players.
• Single regulatory body may not be having
sufficient measures to regulate the whole
market.
• Involvement of market participants is
considered important; self regulation is
preferred and SROs are set up and promoted by
the central regulator.

3. Confusions relating to SROs
• In securities markets, SROs are very pervasive and
we feel that this is the way it is done.
• SROs are not a specific thing.
Control
by
Organisation
the members
Regulations
the
over
Firms have a choice to
become members?
Control
by
members of
Organisation
Firms are forced to
become members?
the
the
2009
• SROs as term appears to be more illusionary than
clear and precise.

4. Organisation of the Discussion
• Part I: History of Self Regulatory Organisations
FINRA
NYSE
• Part II: Special Issues relating to SROs
• Part III: SROs in India
• Part IV: Problems & Perspectives- SEBI‟s Response

5. The Blame Game in Securities Market
1.
Something goes wrong in Securities Market
Gov./SEBI blames SROs for Insufficient Interest
Amend laws governing SROs- More control to SEBI
Consider doing away with SROs- More Control to SEBI
Further amend the laws
6.
And Again a Problem in Market!!!!!
THE
BLAME
GAME

6. Functions of SROs
Industry Specialised Knowledge- Direct Market Contact
Industry Motivation- Direct Substantial Involvement
Contractual Relationship- Efficient Control over Players
Transparency & Accountability- Accessibility to Public
Flexible Compliance Programs- Responses to changes
Coordination & Information Sharing- Better Framework

7. Regulator & SRO
CREATION OF SRO
MAKING OF RULES
SEBI
REGULATION OF PLAYERS
DEFAULT/DAMAGE
SEBI GAINS CONTROL

8. Models of SRO
GOVERNMENT
Regulation performed by
public authority.
Exchanges perform very
limited supervision of
their securities markets.
LIMITED EXCHANGE
Exchange performs
certain regulatory
functions tied to
operation of its market.
STRONG EXCHNAGE
Exchange performs
extensive regulatory
functions that extend
beyond its market
operations.
Examples:
Examples:
Examples:
UK- FSA
France- AMF
US- NYSE
Hong Kong- HKEx
Sweden- OMX
US- CME
Brazil- BMS
Japan- TSE
Australia- ASX

9. Issues in SRO Regulation
• The function of statutory regulator (SEBI) should
not transform from oversight to supervision,
direction and control. Instead, the statutory
regulator should oversee and support.
• There should not be any duplication of work
between statutory regulator and SRO.
MOUs
• Relationship of trust & benefit should exist and
prevail.
• Government‟s oversight should act as an additional
level of confidence to SROs.

10. Compliance Infrastructure
• Every SRO examination must start with a
comprehensive assessment of the “compliance
infrastructure”
• Corporate governance
• Supervision policies and procedures
• Compliance policies and procedures
• Risk management systems
• Capital calculation and monitoring
• Internal controls
• SROs should spell out:
• Key principles that apply
• Minimum standards in each area –compulsory
• Guidance on best practices in each area –
voluntary

11. SROs in India
• Association of Merchant Bankers in India (AMBI)
• Association of Mutual Funds in India (AFMI)
• Association of Custodial Agencies in India (ACAI)
• Registrars Association of India (RAIN)

12. The AMFI Dispute
• SEBI sat enormous pressure on AMFI to act as an
SRO.
• SEBI Blamed- walkover from responsibility
• More stringent regulation by SEBI was needed.
• Chiefs of large mutual funds head committees of
AMFI; they will form a cartel- ignored by SEBI
• This recognises a „conflict of interest‟- the same
that SROs are designed to pull off.
• SEBI happily lists AMFI as an SRO instead!!!!

13. Debatable Questions
• R. 3 (1)- „may make an application‟- why AMFI
dispute?
• R. 5 (1)- „if board is satisfied‟- in practical, the
board is „forcing‟
• Articles could not be amended by SRO- strong
supervision of statutory regulator
• R. 15 (1)- governing norms to made by prior
approval of SEBI- what is then „self regulatory‟?
• R. 15 (4)- SEBI may order rule to be revokedover-interference defaces the concept of SRO

14. Unique in India
• Stock exchanges are already acting as SROsviolation of R. 5-8, SRO Regulations 2004
• Regulators may get representation in SROs- Mar
30, 2007 (Business Standard)- situation of
„cross-regulation‟-‟conflict of interest‟
• PM Regulations (1993) already in force-Draft
Investment Advisers Regulation (2007) in handSEBI pressurizes for SRO for investment
advisers- „Self regulated or self regulatory‟ ?
• Duplication of work by SEBI appears to be its
prestige.
AND MANY MORE…………