Sebi Plans to Re­vamp Reg­u­la­tions for Proxy Ad­vi­sory Firms

Safe­guard­ing them from un­nec­es­sary lit­i­ga­tion, rais­ing ac­count­abil­ity of for­eign firms key fo­cus

The Economic Times - - Markets: Beating Volatility - Pa­van.Bu­rugula @times­group.com

Mum­bai: Mar­ket reg­u­la­tor Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) is plan­ning to re­vamp the reg­u­la­tions for proxy ad­vi­sory firms. The ex­pert panel ap­pointed by Sebi to look into the mat­ter met last week to iden­tify the as­pects where the reg­u­la­tions need to be tweaked.

Pro­tect­ing proxy firms from friv­o­lous lit­i­ga­tion and in­creas­ing the ac­count­abil­ity of the for­eign­based proxy ad­vi­sors will be the key fo­cus for the ex­pert panel, said two peo­ple privy to the de­vel­op­ment. The com­mit­tee headed by San­deep Parekh, founder, Fin­sec Law Ad­vi­sors, will sub­mit its fi­nal re­port by Jan­uary-end.

The de­vel­op­ment as­sumes sig­nif­i­cance as proxy ad­vi­sory firms do not have sep­a­rate reg­u­la­tions de­spite their grow­ing promi­nence. All the proxy firms cur­rently come un­der Sebi’s re­search an­a­lyst reg­u­la­tions.

Last year, ITC had slapped a ₹ 1,000-crore defama­tion suit against proxy firm In­sti­tu­tional In­vestors Ad­vi­sory Ser­vices (IIAS), for al­legedly mak­ing defam­a­tory com­ments against one of its di­rec­tors in a note to in­vestors. IIAS had ques­tioned ITC’s re­mu­ner­a­tion pro­posal for its non-ex­ec­u­tive chair­per­son Yo­gesh Devesh­war.

“Proxy ad­vi­sory firms are not only ex­pected to high­light facts, they are also ex­pected to give opin­ion on sev­eral mat­ters,” said a source cited above. “There should be enough safe­guards in the law to pro­tect the prox­ies from be­ing dragged to court.”

Fix­ing the ac­count­abil­ity of for­eign proxy firms is an­other key chal­lenge un­der the cur­rent reg­u­la­tions. While all the do­mes­tic proxy firms are reg­is­tered with Sebi, the same is not com­pul­sory for the for­eign play­ers. Fur­ther, the com­pli­ance stan­dards ap­pli­ca­ble for do­mes­tic firms do not ap­ply to the for­eign ones since they are out of In­dian reg­u­la­tor’s am­bit.

In July, two of the US-based proxy ad­vi­sors — Glass, Lewis & Co and In­sti­tu­tional Share­holder Ser­vices — asked in­vestors of HDFC to vote against an ex­ten­sion to Deepak Parekh as non-ex­ec­u­tive di­rec­tor on the board. The view taken by these two proxy ad­vi­sories prompted nearly a fourth of the pub­lic in­sti­tu­tions vote against the pro­posal.

Mar­ket par­tic­i­pants did not re­act kindly to the vot­ing call given by the two proxy firms. Keki Mistry, vice chair­man and chief ex­ec­u­tive of­fi­cer of HDFC, had said in a me­dia in­ter­ac­tion that some of the for­eign funds, es­pe­cially the pen­sion funds blindly fol­low what­ever call these proxy firms give without ap­ply­ing “their own mind”.

Uday Ko­tak, manag­ing di­rec­tor of Ko­tak Mahin­dra Bank, also crit­i­cised the for­eign proxy ad­vi­sories and said these firms pro­vid­ing ser­vices in In­dia should be reg­u­lated in the same way as their do­mes­tic coun­ter­parts. “Vot­ing through global proxy ad­vi­sory ser­vices leads to con­cen­tra­tion of vot­ing power in the hands of a few global agen­cies and ques­tions the very ba­sis of well-run, widely held com­pa­nies and di­ver­si­fied own­er­ships.”

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