Stock market regulator SEBI has decided to have a single self regulatory organisation (SRO) for distributors of mutual fund products.

Tejesh Chitlangi, Partner IC Legal said “A formal SRO framework for mutual fund distributors is long awaited. However, keeping in view the strict SEBI regulatory regime governing SROs, none have registered till date, the classical case being that of AMFI. It would be interesting to see if SEBI can relax its regulatory regime to encourage a SRO framework.” To enable distribution and redemption of mutual fund units, distributors will also be allowed to take limited purpose membership of stock exchanges.

Registration and compliance requirements for this would be lesser than that for brokers and would be allotted only to AMFI registered distributors.

To address the possible risk of distributor default, pay-in and pay-out of funds as well as units would be directly from/to the account of the investors and not through the distributor.

“This is an attempt to increase the reach of such distributors and encourage more liquidity in the system,” said Chitlangi.

AMC can become PTM

Asset management companies (AMCs) have been allowed to become ‘Proprietary Trading Member’ of debt segment of stock exchanges. However, AMCs can only trade directly on behalf of debt schemes managed by them.

“Allowing AMCs to seek debt segment membership and trade for their debt schemes should reduce costs of trading,” added Chitlangi. Finally SEBI has allowed mutual funds to appoint a custodian belonging to the same group if the sponsor has a networth of at least Rs 20,000 crore at all points of time and 50 per cent or more of the directors of the custodian do not represent the interests of the sponsor or its associates.

In addition, neither the custodian nor the AMC of a mutual fund shall be a subsidiary of each other and a person is not allowed to be a director of both the custodian and the AMC of a mutual fund.

raghavendrarao.k@thehindu.co.in

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