The Securities and Exchange Board of India (Sebi) has proposed changes to the governance framework for market infrastructure institutions (MIIs)—such as stock exchanges and clearing corporations—citing difficulties in finding suitable governing board candidates and a lack of standardized requirements for key managerial positions.
In a consultation paper issued on Wednesday, the market regulator said MIIs are faced with a limited talent pool for directors, making it difficult to appoint public interest directors (PIDs).
Under current regulations, trading members and clearing members are barred from serving on MII governing boards. Similar restrictions prevent depository participants from sitting on the boards of depositories.
The regulator noted that conglomerates and holding companies may have several subsidiaries separated by strict internal information barriers (called ‘Chinese walls’ in corporate governance) to prevent operational interference and conflicts of interest.
Under existing rules, however, an individual can be disqualified from serving as an MII director simply because a completely separate subsidiary within their parent group operates as a trading member, clearing member, or depository participant.
Proposed changes
The regulator has proposed expanding an existing exemption to include companies with well-diversified shareholding. Under Sebi’s suggested definition, a diversified structure is one in which no shareholder—excluding public-sector entities—holds 10% or more of the equity or voting rights individually or with persons acting in concert, or exercises management control.
A second proposal addresses key managerial personnel. While governing boards currently oversee the appointment, reappointment and termination of the chief technology officer (CTO), chief information security officer (CISO), compliance officer, and chief risk officer (CRiO), there is no standardized framework prescribing their required qualifications, experience, skill sets, or certifications. Sebi said these roles are critical to technological resilience, cybersecurity, compliance and risk management at MIIs.
Under the proposed framework, MIIs must establish standard operating procedures (SOPs) for these roles based on inputs from relevant statutory committees. Sebi has also proposed that MIIs fill any vacancy in these roles within three months, requiring advance planning whenever a vacancy is anticipated.
The regulator has invited public comments on the consultation paper until 30 September.
