Index Provider
The expression ‘index provider’ is defined under Regulation 2(1)(m) of Securities and Exchange Board of India (Index Provider) Regulations, 2024 (‘Regulation’ for short) as a person who controls the creation, operation and administration of a Benchmark or an Index, whether or not it owns the intellectual property rights relating to the Benchmark or an Index, and is in particular, responsible for all stages of the Benchmark or an Index administration process, including-
- the calculation of the Benchmark or an Index;
- determining and applying the Benchmark or an Index methodology; and
- disseminating the Benchmark or an Index.
Bench mark or index
Regulation 2(1)(d) defines the term ‘bench mark’ or ‘index’ as prices, estimates, rates or values, used in relation to securities that are-
- made available to subscribers; whether free of charge or for payment;
- calculated periodically; entirely or partially by the application of a formula or another method of calculation or an assessment of the value of one or more underlying interests;
- used as reference for purposes that include-
- determining the price at which a financial instrument may be bought or sold or traded or redeemed or the value of a financial instrument; or
- measuring the performance of a financial instrument.
Applicability of Regulations
These regulations will be applicable only to Index Providers that administer Significant Indices consisting of securities listed on a recognized stock exchange in India for use in the Indian securities market and not applicable to Index Providers, who administer-
- their Indices consisting only of global asset classes or consisting of global assets and Indian securities whether for use in the Indian securities market or elsewhere;
- their Indices for exclusive use in a foreign jurisdiction.
Registration of index provider
Any entity cannot act as Index Provider unless it gets certificate of registration from SEBI.
Eligibility
- The applicant shall be an entity incorporated under the Companies Act, 2013 or an equivalent legislation in the country of incorporation.
- A stock exchange or other regulated intermediary undertaking Index Provider activities departmentally shall be required to form a separate legal entity to carry out the activities of an Index Provider within a period of 2 years from the date of commencement of these regulations.
- The applicant has a minimum net worth of Rs.25 crores or an equivalent amount in the currency of the country in which the applicant is incorporated, determined on the basis of prevailing foreign exchange rate at the time of application.
- The applicant has in place necessary infrastructure and adequate human resources with the relevant professional qualifications to conduct the operations and business of an Index Provider.
- The applicant, its promoters and directors fulfill the fit and proper requirement for the grant of a certificate of registration.
Application
- The entity who intends to act as Index Provider shall apply in Form A together with appropriate supporting documents that shall be attested as true by a notary public to SEBI.
- Rs.50,000/- is payable towards application fee.
- The applicant shall file with the Board the compliance assessment report that was issued during the preceding twelve months by an independent external auditor for confirming adherence to all International Organization of Securities Commissions Principles for the Financial Benchmarks along with the duly filed application.
- In case of any failure to comply with the requirement the applicant shall provide reasons in writing to the Board with an undertaking to submit within 6 months from the date of grant of certificate of registration by the Board, the detailed report confirming adherence to all International Organization of Securities Commissions Principles for the Financial Benchmarks.
- The Board may at its own discretion provide a requisite extension from the submission of International Organization of Securities Commissions Principles compliance report.
Consideration of application
The Board may require the applicant to furnish such further information or clarification as may be considered necessary for the grant of the certificate of registration as an Index Provider. The applicant or its authorized representative shall, if so required by the Board appears before the Board.
The Board, on being satisfied that the applicant is eligible, shall grant a certificate of registration in Form B and send intimation to that effect to the applicant. Rs.25 lakhs is to be paid within 15 days from the date of receipt of intimation from the Board.
Conditions for registration
The certificate of registration is granted subject to the following conditions-
- The Index Provider shall comply with the provisions of the Act, Rules and Regulations made there under and the guidelines, circulars and directions issued by the Board from time to time.
- If there is any change in the information furnished to the SEBI the same shall be informed within 30 days.
- If there is any change in control the prior approval of SEBI shall be obtained.
- It shall at all times maintain the minimum net worth and submit an audited net worth certificate from a statutory auditor on a yearly basis by the 30th day of September for the preceding financial year.
Renewal of registration
An Index Provider who has been granted a certificate of registration, to keep its registration in force, shall pay the fee Rs.15 lakhs, for every three years from the 6th year of the date of grant of certificate of registration.
Rejection
Any application for a certificate, which is not complete in all respects or does not conform to the requirement of regulation 5 or instructions specified in Form A of the First Schedule shall be rejected by the Board after giving an opportunity to remove, within 30 days of the date of receipt of the relevant communication from the Board, such objections as may be indicated by the Board. The Board may, on sufficient reason being shown, extend the time for removal of objections by such further time as the Board may consider fit but not exceeding 30 days, to enable the applicant to remove such objections.
Governance
The Index Provider shall have appropriate governance arrangements in place in order to-
- protect the integrity of the benchmark determination process,
- mitigate conflict of interest and segregate the persons responsible for index governance from the persons responsible for commercializing the Indices.
Responsibilities of Index Provider
It is the responsibility of the Index Provider for all aspects of its benchmark determination process such as-
- the development;
- calculation and maintenance of an Index and establishment of credible and transparent governance, oversight; and
- accountability procedures and the overall responsibility for the integrity of its indices regardless of the mode or manner utilized for benchmark determination.
If an Index Provider that has developed or develops the Index or Benchmark with another entity it shall establish roles and responsibilities for each party and design standards for its activities to facilitate delivering the Index or Benchmark according to the Methodology of the Index Provider.
The Index Provider shall formulate a framework to monitor such activities of the third parties other than the Index Provider in compliance with the objective of these regulations and provide for a clearly defined written arrangement that sets out the roles and obligations of all the parties involved in such activities. The same is not required if the third party is a stock exchange or a regulated market.
Oversight Committee
The Regulation requires the Index Provider to constitute an Oversight Committee to govern all aspects of the benchmark determination process. The said committee shall consist of individuals who are experienced and knowledgeable in the subject matter. The committee shall be separate and distinct from the department dealing with the day-to-day process of Index calculation and maintenance.
The functions of the said Committee are-
- to review the need for change in the Index design or computation methodology due to changes in the market dynamics or for any other reason and evaluate the proposed approach for the change, if any, along with its impact on the existing subscribers or clients;
- to oversee benchmark design and introduction of new financial benchmarks, results of audit and direct implementation of remedial actions recommended by those audits;
- to review procedures for cessation of an Index;
- to oversee standard procedures followed in the exercise of Expert Judgment;
- to review the conditions in the underlying interest which the Index measures to determine whether the interest has undergone structural changes that might require changes to the design of the methodology periodically;
- to examine as to whether the methodology appropriately reflects the nomenclature and description of the Index and whether the Index is true to label.
Conflict of interest
The Index Provider shall formulate policies and procedures to manage conflict of interest and protect the integrity and independence of the various functions performed in connection with the determination of its Indices. The conflict of interest policies shall clearly specify-
- the manner in which sensitive information shall be protected;
- processes for protection of sensitive information, wherever appropriate; and
- trading restrictions and pre-clearance requirements for appropriate personnel in respect of securities impacted by pending index changes, both of which shall adhere to applicable laws.
Control framework
An Index Provider shall have a control framework for calculating, maintaining and disseminating the Index which shall be documented and upon request, be made available to the SEBI. The Control framework shall consist of the following-
- Policies and procedures as specified under ‘Conflict of Interest’;
- Robust processes and a methodology document for calculating and maintaining the Index and the methodology document which shall include a scenario where discretionary judgment could be exercised in connection with rebalance decisions or the revision of constituents or both within Indices;
- Robust mechanism to ensure clear accountability and effective complaint management;
- Sound framework for documenting, maintaining and testing business continuity and recovery procedures;
- Training to all employees including the employees of the entities which have co-developed the Index or Benchmark or of third parties involved with benchmark determining process on ethics and conflicts of interest on a periodic basis;
- A framework addressing the protection of sensitive information and trading restrictions mentioned under ‘Conflict of Interest’.
Quality of the index
The Index seeks to measure and seek to eliminate factors that the Index Provider believes might result in a distortion of the price, rate or value of that Index. The Index provider-
- shall calculate an Index, using data that is sufficient to represent the underlying interest measured by the Index;
- shall establish and make available in public the guidelines regarding the data inputs and the manner in which such data is used for the calculation and maintenance of an Index.
- shall use inputs consistent with the approach to ensure quality, integrity and continuity of its Index calculations and maintenance as set out in the Index Methodology.
- may obtain submissions from across a wide universe of market segments and shall perform due diligence on its Data Submitters;
- shall formulate a Code of Conduct for Data Submitters to address quality, oversight, conflict of interest management, record-keeping and whistle blowing which shall be published on website of index provider;
- shall make the Methodology documents available in public to facilitate an understanding of the manner in which the Index seeks to measure the interest and the manner in which the Index is calculated and maintained;
- shall put in place guidelines in cases when the Index Provider uses Expert Judgment to maintain an Index.
- shall provide guidelines specifying the timing of announcements for changes to the Index constituents including replacement of constituents in the Indices in its Methodology document in order to bring about the transparency in the dissemination of information about changes to Index constituents.
Quality of the methodology
The Index Provider shall document and make available in public the methodology used for Index calculation. The Index Provider shall frame guidelines in its methodology document addressing time frames for changes to Index constituents by allowing sufficient time for implementation, in order to bring about transparency in the dissemination of information about changes in Index constituent of the Indices. For this purpose the Index Provider shall-
- try to seek market feedback, if required, for making significant changes to the Index methodology;
- review the methodology for an Index on a periodic basis and propose to make changes, if necessary, to adhere to its objective;
- consult and discuss the change in methodology with stakeholders including the market participants, subscribers before implementing the change in methodology; and
- provide advance notice of the implementation of the proposed change in the methodology.
Cessation of Index
The Index Provider shall provide reasonable notice and intimate in advance the subscribers about the cessation of an Index. The Index Provider shall maintain the Index for a reasonable period of time and if feasible, shall also provide an alternative Index within a reasonable time.
Internal control
The Regulated Markets and Stock Exchanges shall ensure equal, unrestricted, transparent and fair access of data to all the Index Providers who have entered into a data sharing agreement with them and shall disseminate data without any bias or preference towards its associates and related entities and ensure that there is no disparity in timing, format and manner of information dissemination.
An Index Provider shall maintain internal controls to address the processes for selection of data sources and data Submitters, for data collection and for the protection of data integrity and its confidentiality.
Dispute resolution
The Index Provider shall provide for a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration, in accordance with the procedure specified by SEBI. Any subscriber to an Index Provider shall have recourse to grievance redressal under these regulations.
Assessment
An Index Provider shall adhere to International Organization of Securities Commissions Principles for Financial Benchmarks. The Index Provider shall ensure an assessment of its adherence at least once in two years. Such assessment shall be performed by an independent external auditor with a proven record of expertise and capability. The first assessment of adherence to International Organization of Securities Commissions Principles for Financial Benchmarks shall be provided by the Index Provider within 1 year of the grant of certificate of registration. The report of the independent external auditor shall be published on the website of the Index Provider.
Report to SEBI
The Index Provider shall submit a report to SEBI at least once in every 2 years containing the details of compliance with the International Organization of Securities Commissions Principles for Financial Benchmarks assessed by independent external auditor.
Other obligations
The other obligations of the Index Provider shall be as below-
- The Index Provider shall submit a report to SEBI at least once in every 2 years containing the details of compliance with the International Organization of Securities Commissions Principles for Financial Benchmarks assessed by independent external auditor.
- The Index Provider shall intimate SEBI the place within India, where all the books of account, records and documents required to be maintained under these regulations are being maintained.
- Every Index Provider shall maintain a functional website publishing such information as may be specified by SEBI and an official email address.
- Every Index Provider shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and circulars issued by SEBI and report to SEBI any non-compliance observed by him as soon as possible, but not later than 7 working days from the date of such noncompliance.
- Each Index Provider shall, at the close of each accounting period, furnish to SEBI copies of its balance sheet and profit and loss account.
Special Audit
SEBI may direct a Special Audit to be conducted for examination of the books of account, records and documents relating to an Index Provider. The Index Provider and their officers shall co-operate and assist for the conduct of special audit by furnishing the required documents/information to the audit team. On completion of the Audit the Auditor shall submit a report to SEBI. If SEBI requires, the auditor may submit an interim report. SEBI may after consideration of the Special Audit Report, communicate such findings of the Special Audit report to the Index Provider and provide reasonable opportunity of hearing to the Index Provider. SEBI take such action as SEBI may deem fit and appropriate including action under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
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