Open to change norms on exchange-traded funds, says Sebi chief

Pitching for more transparency and disclosures with regard to exchange-traded funds (ETFs), Sebi chief U K Sinha today said the markets regulator is willing to make changes to norms regulating the financial product based on inputs from market players and experts.

"Based on inputs from cross section of experts or participants if there is any need that further changes are required for rules and regulations of the ETFs, Sebi will be more than willing to listen to you and incorporate them," Sinha said at a conference here.

Noting that ETF is a significant financial instrument, Sinha cautioned that any further innovation to the product should be dealt with carefully so as to avoid any risks to the investors and the markets.

"We have to be conscience that those types of innovation where higher risk are being taken in some of the countries outside India we are able to avoid," Sinha told reporters on the sidelines of NSE's 'India ETF Conference 2015'.

"If we are able to avoid those risks, make proper disclosures, are able to communicate properly then ETF has a very good chance of growing in India and provide good services to the investors," he added.

On possibility of introducing ETF-based on commodities following the FMC merger with Sebi, Sinha said that introduction of new players and products would be happen after a few months.

"We first have to be fully satisfied that all regulations and safeguards are in place," Sinha said.

"We don't want any negative surprises to happen. This will take a few months. Once that is over allowing new products and players would start happening," he added noting that the regulator would go for product development and business development once the system is tested.

Speaking at the conference, Sinha said the primary reason for having an ETF is liquidity but one has to guard against whether the liquidity is available at the time of stress or not.

"In case there is a crisis and people get perception that there are serious risks it could effect the product. There could also be situation that underlying is actually not liquid while the ETF is liquid, such things should also be avoided," Sinha said.

He further said that more disclosures with regard to ETF are required so as to benefit the investors.

An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.