Sebi to tighten norms for stock exchanges, other market infra institutions

Sebi on Tuesday decided to amend governance norms for stock exchanges and market infrastructure institutions

Sebi on Tuesday decided to amend the governance norms for stock exchanges and market infrastructure institutions, including categorising their functions into three verticals and rationalising the appointment process for public interest directors.

The regulatory changes are expected to bring in "greater transparency and accountability" in the functioning of Market Infrastructure Institutions (MIIs), Sebi said after its board meeting here.

The changes, cleared by the board, have been finalised after a comprehensive review of the governance of MIIs -- stock exchanges, clearing corporations and depositories.

Going forward, the function of an MII will be categorised into three verticals -- critical operations, regulatory, compliance and risk management, and other functions, including business development.

The Key Management Personnel (KMPs) heading the functions under the first two verticals will be at par in the hierarchy with the KMPs heading the third vertical. Also, MIIs will have to give higher priority to the resource allocation towards the functions under the first two verticals.

In a release, Sebi said that MIIs will be required to mandatorily appoint Public Interest Directors (PIDs) with background and expertise in the areas of technology, law and regulation, finance and accounts and capital markets.

PIDs will continue to meet every six months, and in addition to the submission of a report to the board of the MII, they will be required to submit a report to Sebi after the meeting.

Also, Sebi said the internal evaluation of the functioning of MIIs and their statutory committees will be done annually while the external evaluation will be done by an independent entity once in three years.

Apart from setting up an investment committee that will be responsible for evaluating various investments of MIIs, the regulator said the entities will also have to disclose on their respective websites the agenda items and minutes of the governing boards pertaining to regulatory, compliance and risk management aspects.

"A sharper Code of Conduct will be applicable to the MII, the governing board, directors, KMPs and committee members... further, board members and KMPs will be held accountable if they are aware of wrongdoing(s) and do not appropriately report the same," the release said.

The definition of KMPs will be changed to cover employees based on the importance of activities carried out by them and their relative hierarchy within the MII. Further, the MII will clearly delineate and segregate the roles and responsibilities of such identified KMPs within each function.

Sebi noted that the appointment and removal of KMPs will be done by the respective Nomination and Remuneration Committees (NRCs) of MIIs. MIIs will also have to appoint a separate Chief Risk Officer and the performance of KMPs will be evaluated every six months.

Among others, the Chief Regulatory Officer or Compliance Officer will be required to submit a quarterly report to Sebi on non-compliances.

"No employee of the MII will be permitted to simultaneously be an employee of a subsidiary of the MII," the release said.

With respect to data sharing, Sebi said MIIs will be required to frame an internal policy for sharing and monitoring data.

The amendments will come into effect from 180 days from the date of notification in the official gazette.