Context:
A regulatory framework will be introduced for the index providers to foster transparency and accountability in governance and administration of financial benchmarks in the securities market.
Key Highlights –
Who are market index providers?
The most prominent indices in India are the Nifty50 by NSE Indices, and Sensex provided by a venture of S&P Dow Jones Indices and BSE Lied. |
How they help investors?
What are index funds?
Need for regulation:
SEBI had stressed the need for greater oversight on currently unregulated index providers like NSE Indices (a National Stock Exchange subsidiary) and the Asia Index Pvt. Ltd. citing their growing dominance due to the “proliferation” of index funds.
The firms associated with investors could “exercise discretion through changes in methodology resulting in exclusion or inclusion of a stock in the index or change in the weights of the constituent stocks” and their decisions can impact the volumes, liquidity and price of such stocks, as well as investors’ returns from index funds.
As of January 2023, almost 16% of the mutual fund industry’s 41 lakh crore assets under management were in index and exchange traded funds (ETFs), including from large investors like the Employees’ Provident Fund Organisation (EPFO) which oversees formal sector workers’ retirement savings. |
Significance
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Role of Securities Exchange Board of India (SEBI)
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