Market regulator Sebi on Wednesday proposed an elaborate regulatory framework for index providers to increase transparency and accountability in the governance and management of indices in India’s securities market.

In a consultation paper, Sebi said that regulations for index providers should provide for provisions to ensure, among other things, eligibility criteria, compliance, disclosure, regular audits and penalties in case of non-compliance/incorrect disclosure.

“The proposed regulations should apply to index providers (both domestic and foreign) if the users of the index/product based on the index are located in India,” it said.

According to the regulator, an index provider should be a legal entity incorporated in the country of origin under company law. Independent professionals, individuals or groups providing index/benchmark services are not eligible.

Among other requirements, an index provider shall have a minimum net worth of Rs 25 crore.

Index providers should have a five-year index management record. Alternatively, any entity may be eligible to register as an index provider provided it employs at least two persons, each with at least five years of experience in the operations and business of an index provider.

“Index providers should conduct due diligence on data submitters and develop a code of conduct covering quality, oversight, conflicts of interest, record keeping, etc.,” the consultation paper said.

Sebi noted that independent external auditors should assess index providers every two years to determine compliance with IOSCO (International Organisation of Securities Commissions) principles. However, it added that the first assessment should take place within one year of the grant of registration.

Stakeholders have until January 27 to submit their comments on the consultation paper.

In the stock market, an index measures changes in the value of a group of securities that form part of the index. In addition to broad market indices, there are also custom indices, also known as bespoke indices, which are explicitly designed and created at the request of fund managers and tracked by them.