Sebi’s regulatory framework for index providers

Sebi’s regulatory framework for index providers has been implemented to enhance transparency and accountability in benchmark index administration.

About regulatory framework:

• Index providers offering indices for use in India are required to register with the regulator and obtain authorization for the introduction of such indices.
• An index provider must have a minimum net worth of Rs 25 crore and must have a minimum of 5 years of experience in index administration
• An index provider must constitute an oversight committee to review the existing index design.
  • The committee must also review the index methodology to ensure it reflects the nomenclature and description of the index.

Who are Index Providers?

• An index provider is a specialized firm that develops, calculates, and maintains market indices.
• These indices serve as benchmarks or reference points for various investment products, including ETFs.
• Index providers play a crucial role in ensuring the accuracy, transparency, and integrity of these indices.
• Index providers establish the rules and criteria for selecting the securities that will be included in an index.
• They also determine how the index’s weightings will be determined and how the index will be rebalanced periodically.
• Additionally, they oversee the calculation and dissemination of the index’s value on a regular basis.

What is an Index?

• The index is the most essential element in stock market trading, as it helps investors gauge the overall sentiment.
• An index calculates a numerical score using inputs such as asset prices.
• An index measures the price performance of a basket of securities using a standardized metric and methodology.
• Financial market indexes are commonly utilized as benchmarks for evaluating investment performance.
• Numerous indices are associated with financial products like exchange-traded derivatives, index funds, exchange-traded funds (ETFs), and market-linked debentures.
• Indices also serve as benchmarks for actively managed mutual funds.
• Presently, fund managers track benchmarks and indices owned and managed by entities of both the BSE and the National Stock Exchange.
• Nifty 50 and Nifty PSU Bank are among the significant indexes in the Indian markets.

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