India: SEBI issues Circular on role of Independent Oversight Committee for Product Design

February 23, 2018


In light of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, for the purpose of protecting the interests of investors in securities and to promote the development and regulation of the securities market, the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2018/12 dated January 22, 2018, had issued a circular with regards to the role of the Independent Oversight Committee for Product Design.

Background –

Prior to the above mentioned circular, SEBI vide circular no. CIR/CDMRD/DEA/03/2015 dated November 26, 2015, advised all the commodity derivatives exchanges to set up an oversight committee to overlook into matters pertaining to product design. Paragraph 21 of the said circular states as under-

“21. Commodity derivative exchanges shall comply with the requirements of Regulation 29 read with Regulation 44D (1) (b) of SECC Regulations within three months. National commodity derivatives exchanges shall constitute an oversight committee for ‘Product design’, chaired by a Public Interest Director, within three months.”

SEBI observed that the commodity derivatives exchanges have been adopting varied approach in complying with the above requirement both in the constitution and the functioning of such oversight committees.

Function of the oversight committee –

In order to bring uniformity with respect to the role of the oversight committee on product design, and after having discussions with commodity derivatives exchanges on this issue, SEBI listed the following functions of the oversight committee for ‘Product Design’ —

  • To oversee matters related to product design such as introduction of new products/contracts, modifications of existing product/contract designs etc. and review the design of the already approved and running contracts.
  • To oversee SEBI inspection observation on Product Design related issues.
  • To estimate the adequacy of resources dedicated to Product design related function.

Requirements as per the Circular –

The head(s) of department(s) handling the product design shall report directly to the oversight committee and also to the Managing Director. Any action of the Exchange against the aforesaid head(s) shall be subject to an appeal to the committee, within such period as may be determined by the governing board.
Recognized stock exchanges operating in the International Financial Services Centres (IFSC) shall also be required to constitute an oversight committee for product design and discharge their functions enumerated at para ‘2’ and ‘3’ above.

The provisions of this circular shall come into effect from 30 days from the date of the circular being issued.

Henceforth, the Exchanges are advised to:

  • take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same.
  • bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website.
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