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Besides, the regulator has suggested greater disclosure requirements by credit rating agencies (CRAs) as well as by companies getting their services, according to a consultation paper.
The proposed norms are likely to have an impact on global rating agencies like S&P, Moody's and Fitch which have significant holdings in domestic agencies besides their direct presence.
In a significant move, the regulator has proposed that no CRA should "directly or indirectly, hold more than 10 per cent of shareholding and/ or voting rights in another CRA and shall not have representation on the board of the other CRA".
Further, Sebi's prior approval would be needed for acquisition of shares or voting rights in a CRA that results in change in control.
"A shareholder holding 10 per cent or more shares and/ or voting rights in a registered CRA shall not hold 10 per cent or more shares and/ or voting rights, directly or indirectly, in any other CRA," it noted.
The requirement would not be applicable for holdings by broad-based domestic financial institutions.
"Having some thresholds on cross-holding in CRAs may mitigate concerns regarding conflict of interest, independence of operations, etc," the consultation paper said.
As per Sebi, any activity, other than the rating of financial instruments and economic or financial research, should be hived off by the CRA into a separate entity.
The watchdog has suggested that certain class of promoters of credit rating agencies should have a "sound track record" of business in financial services for at least five years.
This would be applicable for entities other than public financial institution, scheduled commercial bank, foreign bank or foreign credit rating agency.
The minimum net worth threshold for the rating agencies has been proposed to be raised to Rs 50 crore from the current level of Rs 5 crore.
This would help them to invest in building intellectual capital, developing efficient systems and infrastructure and adopting better technology to ensure the highest standards of analytical rigour, it added.
As part of enhanced disclosure framework, Sebi has proposed that the agencies should come out with an annual rating summary sheet presenting a snapshot of rating action carried out during the year. The same has to be uploaded on their respective websites annually, separately for securities and financial instruments.
Issuing the consultation paper on review of regulatory framework for CRAs, the watchdog said the objective is to seek views from the public on the proposals that are expected to improve market efficiency and enhance the accountability as well as functioning of these agencies.
The consultation paper would be open for public comments till September 29.