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 Sebis research analyst regulations.Last year, ITC had slapped a Rs 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 ITCs 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 regulators 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.