Sebi tightens grip on board composition at market infra institutions

The Securities and Exchange Board of India (Sebi) has tightened its grip on board composition at market infrastructure institutions (MIIs).

The regulator already has a strict framework in place dictating the appointments and tenures of board members at stock exchanges, clearing corporations and depositories –termed MIIs in market parlance. However, it appears the regulator opposed reappointment of certain ‘shareholder directors’ due to concerns over their lengthy association.

“In terms of Sebi letter dated February 17, 2020, NSE is advised not to forward the names of Abhay Havaldar and Prakash Parthasarthy for reappointment to the NSE board as and when appointment is due,” the exchange has mentioned in its annual report for 2019-20.

Both Havaldar and Parthasarthy have served on the NSE board for more than eight years. They were nominated on the board by General Atlantic and PremjiInvest respectively.

Another shareholder director nominated by Life Insurance Corporation (LIC), Sunita Sharma, however, has got the regulator’s nod for re-appointment. She has been associated with NSE since October 2016.

Not just NSE but BSE too has seen its shareholder director exiting. According to BSE’s 2019-20 annual report, Usha Sangwan, nominated by LIC, whose tenure ended in June requested the exchange not to re-appoint her citing “personal and health reasons.” She was appointed to the BSE board in September 2016.

Other MIIs, including National Securities Depository (NSDL) and the Central Depository Services India (CDSL) have got new shareholder directors this year. The trend suggests regulator has been in favour of shorter tenures for independent directors that serve on the boards of MIIs.

There are two kinds of independent directors that serve on the board of MIIs—public interest directors (PIDs) and shareholder directors.

A shareholder director is nominated by dominant shareholders. PIDs are appointed by the exchanges and Sebi. Their objective is to safeguard the larger interest of the securities market.

PIDs are appointed for a period of three years and can have a maximum of two tenures with a single MII and one more tenure with another MII with a one-year cooling off period.

Meanwhile, appointment of shareholder directors is governed by the Companies Act, which allows tenure of up to five years and reappointment by way of special resolution.

Experts say while Companies Act allows lengthier association, Sebi believes in shorter tenures to avoid conflict of interest.