Emphasises the need to have a trading platform for smaller companies

The Securities and Exchange Board of India (SEBI)- appointed International Advisory Board (IAB) has said that there is a need to widen the reach of the mutual fund industry, horizontally and vertically.

The Board also emphasised that in order to enhance the participation of households, the mutual fund industry had to educate the investors of the attractiveness of mutual funds in terms of returns and cost effectiveness, compared to other financial products.

The role of the IAB will be to guide SEBI and, in doing so, bring in the global experiences and emerging developments and challenges. The IAB will meet twice in a year. Its first meeting was held in New Delhi on Friday.

The IAB stressed the need for the mutual funds to offer lifecycle products along with plain vanilla products. It underscored the need to have in place an effective framework for regulation of distributors. It also suggested that SEBI might consider encouraging competition in the industry while insisting on transparency and reducing dependence on the existing channels of distribution by enhancing the distribution of mutual fund products through alternative channels such as Internet.

The IAB was apprised of the situation prevailing in the Indian primary market. The IAB emphasised the need to have a listing and trading platform for smaller companies, to address the conflicts of interests at the level of the market intermediaries and to make the enforcement actions more effective. It advised SEBI to explore the provision of greenshoe option for price stabilisation and independent research coverage of listed companies for a few years post-listing through a common agency.

After taking note of the practices in some of the Financial Action Task Force (FATF) compliant countries, the IAB advised SEBI to explore risk-based customer due diligence processes without granting any sort of exemptions to any category of investors.

The IAB took note of the risk management mechanisms in place in the equity and equity derivative segments in India. It advised SEBI on the need to strengthen the legal framework to protect the collaterals of the clients posted with the brokers. The IAB also deliberated on the global developments related to algorithmic / high frequency trades and co-location and the resultant challenges to risk management.

As a step towards inter-operability of central counterparties, the IAB advised SEBI to prescribe common standards/ protocol for market participants. It also looked into the means to canalise domestic savings into the securities markets so as to help meet the growth objectives. Among the measures recommended by the IAB are: development of a vibrant corporate bonds market and exploring the introduction of securitized debt instruments and real estate investment trusts with appropriate risk management.

The members of the IAB, in addition to the Chairman, SEBI, are: Viral Acharya, Jane Diplock, Mark Maletz, Maureen O'Hara, Arvind Panagariya and Andrew Sheng.

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