SEBI Proposes Major Governance Overhaul for Market Infrastructure Institutions

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

• 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