India reviews mutual fund, brokerage rules; Sebi board meets tomorrow to overhaul norms

Sebi board on Wednesday will consider a report of a high-level panel, which has recommended public disclosure of assets of senior officers to avoid conflict of interest, along with comprehensive reviews of its mutual fund and stock broker norms, officials said.

Other key agenda include relaxed KYC requirements for NRIs and introduction of a closing-auction session, they added.

This would be the fourth board meeting chaired by Sebi chief Tuhin Kanta Pandey who assumed office on March 1.

In the board meeting, the regulator will discuss the panel’s report, which proposes comprehensive reforms to bring in transparency by way of greater disclosure and a “zero-tolerance” culture to address conflict of interest of top officials of Sebi.

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The panel submitted its report to Pandey on November 10. The report also recommended setting up a secure and anonymous whistleblower system for reporting conflict of interest, ban on expensive gifts, a two-year restriction on post-retirement assignments, and creating a post of Chief Ethics and Compliance Officer (CECO).

On mutual fund and stock broker norms, the regulator had already released consultation papers on both sets of regulations.

In October, the regulator issued a consultation paper proposing an overhaul of mutual fund rules, including a clearer definition of the Total Expense Ratio (TER) and revised limits on brokerage charges. These recommendations are aimed at enhancing transparency, rationalising information, reducing redundancies, and easing compliance.

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As part of the proposed framework, Sebi plans to remove the additional 5 basis points (bps) that asset management companies (AMCs) were previously allowed to levy across mutual fund schemes.

This additional expense, introduced to offset the impact of crediting exit loads back to schemes, was first set at 20 bps in 2012 and later reduced to 5 bps in 2018. The additional expense of 5 bps that mutual fund schemes were allowed to charge was transitory in nature.

To further improve clarity, Sebi also suggested excluding all statutory levies such as STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax), and stamp duty from TER limits, along with currently permissible expenses for brokerage, exchange, and regulatory fees.

At present, GST on management fees is allowed over and above the TER limit, while other statutory charges fall within the prescribed cap for mutual fund schemes.

In addition to mutual fund rules, the board will also take up the proposal to review the 1992 Stock Broker Regulations.

As part of this revamp, Sebi proposed introducing a definition for ‘algorithmic trading’ to streamline compliance requirements, as the current framework lacks any such clarity.

Regulations for stock brokers were framed 30 years ago and Sebi is looking to update them, officials said.