Online dispute resolution (ODR) firms are requesting SEBI to refine, rather than remove, private platforms from its dispute framework. This appeal follows SEBI's proposal to shift administrative control to market infrastructure institutions, raising concerns among private players about investment losses and potential conflicts of interest.
Online dispute resolution (ODR) firms are raising concerns regarding a proposed overhaul by the Securities and Exchange Board of India (SEBI) that could see their role in the financial ecosystem significantly reduced or eliminated. In a consultation paper released on July 23, the regulator suggested moving the administration of conciliation and arbitration processes entirely to market infrastructure institutions (MIIs), such as stock exchanges, depositories, and clearing corporations. These platforms, which have invested years in building specialized technology and compliance teams, are now calling for a collaborative approach to improve the existing system instead of replacing it.
Challenges in the Current Framework
Industry participants argue that the bottlenecks SEBI seeks to address are often systemic rather than caused by the ODR platforms themselves. A primary concern is the current fee structure, which many operators describe as unviable. For example, while the cost to process a conciliation is around ₹2,500, the platforms receive only ₹600. Furthermore, ODR providers frequently face revenue shortfalls, as conciliation fees remain unpaid in approximately 30% of cases. In these instances, the platforms are often left to cover the fees of the conciliators out of their own pockets to maintain service continuity.
Concerns Over Conflicts of Interest
Beyond the financial impact, experts and platform executives have pointed to potential structural issues if MIIs take over the entire dispute resolution process. Because MIIs act as front-line regulators for market participants while also engaging in business with them, centralizing arbitration within these institutions could create a conflict of interest. Critics suggest this dual role might threaten the perceived independence of the arbitration process, which is critical for investor trust. Legal observers also note that transferring administrative duties does not inherently solve the primary challenge of enforcing arbitral awards, which remains dependent on court procedures outside the immediate control of both ODR platforms and MIIs.
Next Steps for Stakeholders
SEBI has invited public feedback on the proposed changes, with a deadline for comments set for August 13. For investors and market participants, the outcome of this consultation is significant as it will determine the future landscape of dispute resolution in the Indian securities market. The key monitorable remains how SEBI balances the need for a streamlined, efficient grievance redressal system with the concerns regarding the financial sustainability of private ODR entities and the necessity of maintaining a neutral, independent forum for resolving investor disputes.