Separate MII functions into three verticals, recommends Sebi expert panel

Market infrastructure institutions are considered to be the pillars of the stock market ecosystem. These include stock exchanges, clearing corporations, and depositories.

An expert group constituted by the Securities and Exchange Board of India (Sebi) to strengthen governance at market infrastructure institutions (MIIs) has suggested the creation of three distinct verticals to avoid conflict of interest. 

These include critical operations; regulatory, compliance and risk management and other functions such as business development. The committee has recommended that in terms of hierarchy, the key managerial personnel (KMPs) of all three verticals will be at par. However, in terms of resource allocation and utilisation, the functions under the first two verticals separately should be given higher priority.

MIIs are considered to be the pillars of the stock market ecosystem. These include stock exchanges, clearing corporations and depositories.

In April, the markets regulator had constituted an ad hoc committee under the leadership of its former whole-time member G. Mahalingam. The move came in the wake of alleged governance lapses at NSE over the appointment and promotion of over appointment and promotion of Anand Subramanian as group operating officer of NSE.

The committee submitted its detailed recommendations report — aimed at further strengthening the governance norms relating to MIIs — to Sebi last week. The report was made public on Wednesday to seek public comments. “They are vested with regulatory responsibilities, while pursuing commercial interests like other profit-oriented entities. Because of this conflicting nature of MII’s role, the governance standards of MIIs need to be robust to increase market confidence and deter malpractices,” the expert group has said in its report.

The committee has felt that a rule-based approach for the regulation of MIIs should be balanced with a principle-based approach.

The committee has put a lot of onus on roles and responsibilities on public interest directors (PID) to ensure greater independence of the board. The Mahalingam panel has suggested at least two-third members of the board of the MII shall comprise of PIDs. Further, their roles and responsibilities of all directors should be clearly outlined, especially their responsibilities towards regulatory, compliance and risk management functions.