Context and Regulatory Background
- MIIs include stock exchanges, clearing corporations, and depositories, regulated primarily under:
- Securities Contracts (Regulation) Act, 1956
- SEBI Act, 1992
- Depositories Act, 1996
- Relevant regulations like SECC Regulations, 2018, and D&P Regulations, 2018
Mandated Functional Segregation: Vertical Structure
MIIs are required to operate through three distinct verticals:
- Vertical 1: Critical Operations (e.g., trading, clearing & settlement)
- Vertical 2: Regulatory, Compliance, Risk Management & Investor Grievances
- Vertical 3: Business Development and Other Functions
SEBI stresses resource prioritization for Verticals 1 & 2 due to their public interest significance.
Rationale for Reform
- The rapid growth in market size, participants, technology usage, and capital flows demands stronger internal governance.
- Concerns:
- The Managing Director (MD) currently holds overarching authority across all verticals.
- Other Key Managerial Personnel (KMPs) have lower authority, posing governance risks.
- Lack of clear role definitions for CTO, CISO, and the proposed Executive Directors (EDs).
Key Proposals for Governance Reform
Appointment of Executive Directors (EDs)
- MIIs must appoint two EDs to independently head Vertical 1 and Vertical 2.
- EDs will serve on the Governing Board alongside the MD.
- EDs must be of comparable stature to the MD; their appointment/re-appointment requires SEBI approval.
Reporting Structures
- EDs report administratively to the MD, but performance evaluation involves independent committee oversight:
- SCOT (Technology) for ED of Vertical 1
- ROC and RMC (Compliance and Risk) for ED of Vertical 2
- Department heads (e.g., CTO, CISO, Compliance Officer, CRiO) will report to their respective EDs.
Directorship Restrictions
- MD may hold non-executive director positions in:
- Section 8 companies (non-profit)
- Unlisted government companies (non-commercial only)
- EDs may only serve on the board of an MII’s subsidiary, not any other company.
Amendments & Public Consultation
- Indicative amendments to SECC and D&P Regulations have been proposed (Annexure-2).
- Public comments are invited by July 15, 2025 via SEBI’s online portal or email:
- SEBI Public Comment Portal
- Subject Line: “Strengthening Governance of Market Infrastructure Institutions (MIIs)”
SEBI & TET
