In an effort to promote transparency in the governance and administration of financial benchmarks in the securities market, the Securities and Exchange Board of India (SEBI) has made it mandatory for index providers managing “significant indices” based on securities listed in India to register under its regulatory framework. This requirement comes after SEBI’s board approved the norms nearly a year ago, with the regulator officially notifying the SEBI Index Providers Regulations on Friday.
SEBI’s recent mandate on index providers has stirred the financial landscape, with global index providers potentially exempt from registration unless their indices significantly impact domestic asset managers. The regulations exclude indices exclusively used abroad and those regulated by the RBI.
Among the affected entities, the NSE and Asia Index (AIPL) face registration requirements under SEBI. The latter, a joint venture between the BSE and S&P Dow Jones Indices, is undergoing changes due to S&P Dow Jones Indices’ exit plans from the venture.
Despite the regulatory shift, prominent index providers like MSCI, Nasdaq, and FTSE Russell may escape registration due to their predominant use by overseas investors. However, those impacted must comply with SEBI’s guidelines, including making methodology documents public, following a code of conduct, and enhancing transparency on inclusion and exclusion criteria.
SEBI’s move aligns with global efforts to regulate index providers, recognizing their growing influence and market impact.
In parallel, SEBI’s amendments to REIT regulations signal a shift towards inclusivity, allowing for the creation of Small and Medium REITs. This amendment broadens the scope of REITs to include residential and commercial properties valued at a minimum of Rs 50 crore, addressing industry concerns regarding net worth requirements and sponsor holding.
According to industry insiders, the regulatory coverage provided by Small and Medium REITs (SM REITs) instills greater confidence among investors, making this route more appealing to potential players. Previously, platforms allowing co-ownership of real estate assets required minimum investments ranging from Rs 25 lakh to Rs 50 lakh. However, with the introduction of SM REITs, the minimum investment size has been reduced to Rs 10 lakh.
SM REITs offer investors the opportunity to leverage their investments by borrowing up to 49 percent of the asset value. Additionally, it ensures greater alignment of interests between sponsors and investors. A legal expert elaborated that sponsors of SM REITs are required to invest their own capital, with varying percentages depending on leverage (5 percent without leverage, and 15 percent with leverage). This commitment from sponsors reinforces alignment of interests, bolstering investor confidence in SM REITs.