Good guys need to win, tell us about mischief makers in market: Buch

"Urge the association to bring forth to the regulator any instances of mischief in the market that are going on, so that the regulator can take early action and not wait until it explodes in the system and then we have to come back with a heavy hand," she said, addressing managers here.

Recalling her own experience as an industry participant, Buch said it is "frustrating" for the law-abiding participant when he or she discovers an industry peer gaining using bad practices.

"Good guys need to win. You guys need to tell us about what mischief is going on so that we can stop it early on. It's in your own self-interest to come and tell the regulator what are some of the bad practices happening in the market," she said.

Buch said when any mischief happens, is eroded and this leads to two broad outcomes.

It takes really long to rebuild the trust, she said, adding that the second impact of such a happening is a strong regulatory response to the new wrongdoings.

Maintaining trust is very important for every participant in the financial ecosystem, Buch said, adding that if it is belied, the entire system can fall down like a pack of cards.

Regular dialogue with the regulator will lead to co-creation of rules, Buch said, making it clear that SEBI is adopting this approach purely from a self-preservation perspective, and this is not a magnanimous move.

In the case of the portfolio managers, SEBI looks at the industry to reside between the mutual funds and the alternate investment funds, Buch said, making it clear that the same hierarchy will continue.