Open to change norms on exchange-traded funds: SEBI chief

Mumbai: Pitching for more transparency and disclosures with regard to exchange-traded funds (ETFs), SEBI chief U K Sinha Monday said the markets regulator is willing to make changes to norms regulating the financial product based on inputs from market players and experts.

"Based on inputs from cross section of experts or participants if there is any need that further changes are required for rules and regulations of the ETFs, SEBI will be more than willing to listen to you and incorporate them," Sinha said at a conference here.

Noting that ETF is a significant financial instrument, Sinha cautioned that any further innovation to the product should be dealt with carefully so as to avoid any risks to the investors and the markets.

"We have to be conscience that those types of innovation where higher risk are being taken in some of the countries outside India we are able to avoid," Sinha told reporters on the sidelines of NSE's 'India ETF Conference 2015'.

"If we are able to avoid those risks, make proper disclosures, are able to communicate properly then ETF has a very good chance of growing in India and provide good services to the investors," he added.

On possibility of introducing ETF-based on commodities following the FMC merger with SEBI, Sinha said that introduction of new players and products would be happen after a few months.

"We first have to be fully satisfied that all regulations and safeguards are in place," Sinha said.

"We don't want any negative surprises to happen. This will take a few months. Once that is over allowing new products and players would start happening," he added noting that the regulator would go for product development and business development once the system is tested.

Speaking at the conference, Sinha said the primary reason for having an ETF is liquidity but one has to guard against whether the liquidity is available at the time of stress or not.

"In case there is a crisis and people get perception that there are serious risks it could effect the product. There could also be situation that underlying is actually not liquid while the ETF is liquid, such things should also be avoided," Sinha said.

He further said that more disclosures with regard to ETF are required so as to benefit the investors.

An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.

"Regulators have been criticised of being slow, but in India we have been conscience of the fact that we should move ahead with the requirement of the innovation but only at a pace where we are confident that the market is ready to absorb that innovation.

"We have taken certain conservative steps but for a long term sustainable healthy growth of ETF markets it is necessary we do that. We learn from our mistakes and then make further improvements," Sinha said.

SEBI chief said that investment by retirement fund body EPFO in equities through ETF route for the first time is a significant development and would help in growth of markets.

According to Sinha, ETF has helped hedge risks and provide tax efficiency in certain jurisdiction. He also noted that ETF market have grown 12 times in last 12 years in India.

Speaking at the event, NSE managing director and CEO Chitra Ramkrishna said, "Recently the exchange has commenced launch of products in government securities and gilt space and there are significant work in the background which will help us look at products and launch products in the commodity space in the ETF category in the next few months to come".

She said that assets under management for the ETF sector has the potential to grow to Rs 1 lakh crore.

Ramkrishna also said that NSE plans to bring in more broader indices in the next five years to represent large proportion of market capitalisation.

ETFs based on Nifty is one of the oldest and the most popular ETF in India.

NSE has 97 per cent market share in AUM of equity-based ETF. There are 11 Equity ETFs Nifty 50 in India and 6 ETFs on Nifty 50 are listed abroad in global markets.