As stock exchanges NSE and BSE get new investors on board, their role as first-level regulators is under scrutiny, reports CNBC-TV18.

It's been a long drawn plan to move from trading on the BSE - to trading the BSE itself! As exchanges transform into profitable companies, their role as first-level regulators returns to haunt watchdog Sebi.

"Of course, conflict of interest between profitability and first level regulator will be there. And that is left to the sanity of the exchanges administration about how they will handle it - to see how it sits together," says M S Ray, executive director, SEBI.

But the regulator may not derive too much satisfaction from that sanity. And so it is debating making them Self Regulatory Organizations or SROs.

"SRO is a concept, which is being actively discussed. But SRO has to have a regulatory component and also be a trade association. If you are a trade association, there is a conflict of interest between being a trade association and being a regulator. So that also needs to be resolved," he adds.

In the US, the NYSE and NASDAQ have found a solution to this problem. They had spun off their regulatory arms as independent SROs - NASD and NYSE Regulation Inc. These entities have been empowered by the SEC to be the first level regulators.

And now, NYSE regulation Inc and NASD are consolidating to form a new regulatory body, which will be the private sector regulator for all securities brokers and dealers in the US. It is solutions like this, that 183 regulators including SEBI will be looking for at the 32nd IOSCO meet in Mumbai next month.