Sebi green signal for MF distributors' self regulator

Also allows distributors to have membership of stock exchanges with lesser financial and compliance burden

The Securities and Exchange Board of India (Sebi) on Tuesday gave green signal for setting up a self-regulatory organisation (SRO) for mutual fund distributors. The step has got positive feedback from the industry players.

The capital markets regulator also made it clear that it did not want any further delay and had decided to have a cut-off time for accepting applications for being recognised as an SRO.

"This is a step in the right direction. The matter was long under consideration. Now, there will be regulator for distributors to manage them and address the issues related with distribution," says Akshay Gupta, chief executive officer and managing director of Peerless Mutual Fund.

Further, mutual fund distributors can now have limited purpose membership of stock exchanges with lesser financial and compliance burden to use infrastructure of exchanges for distribution and redemption of mutual fund units. This will only bring better operating efficiencies among distributors, said industry executives.

To reduce the financial and compliance burden on these limited purpose members, requirements such as Sebi registration, compliance as member of stock exchange, paid-up capital and base minimum capital would not be applicable, said a statement from Sebi. However, stock exchanges may prescribe suitable eligibility criteria in this regard, including net worth requirements and membership fee, among others.

This limited purpose membership would be granted on the basis of ARNs (Amfi Registration Number), granted to mutual fund distributors by the Association of Mutual Funds in India (Amfi). Further to address the possible risk of default by these limited purpose members, distributors will not be allowed to handle pay-in and payout of funds, as well as units on behalf of investor. Pay-in and payout of funds and units would be directly from/to the account of the investors.

Apart from that, Sebi also has permitted mutual funds to take membership of the debt segment of stock exchanges under the 'proprietary trading member' (PTM) category. However, this will only be to undertake trades directly on behalf of such schemes managed by them.

In yet another decision, Sebi also decided that the custodian in which the sponsor of a mutual fund or its associates are holding 50 percent or more of the voting rights of the share capital, would be allowed to act as custodian. However, this will be subject to conditions as follows:

(a) The sponsor should have net worth of atleast Rs.20,000 crore at all points of time.

(b) 50 per cent or more of the directors of the custodian shall be those who do not represent the interests of the sponsor or its associates.

(c) Neither the custodian nor the asset management company of a mutual fund shall be a subsidiary of each other.

(d) No person shall be a director of both the custodian and the asset management company of a mutual fund.

(e) The custodian and the asset management company of a mutual fund shall sign an undertaking that they will act independently of each other in their dealings with the schemes.