Sebi likely to tweak its June reform proposal on governance of MIIs

The Securities and Exchange Board of India (Sebi) is considering watering down its June proposal on governance reforms for market infrastructure institutions (MIIs), including stock exchanges, clearing corporations, and depositories, according to people familiar with the matter. 

Separately, the regulator is weighing the introduction of a variable pay component of up to 25 per cent for certain key managerial employees of MIIs in their annual remuneration. 

In June, Sebi had proposed appointing executive directors (EDs) at a level comparable to managing directors (MDs) of the MIIs. It also suggested that key committees — Regulatory Oversight, Risk Management, and Technology — hold separate meetings exclusively with the EDs, excluding the MD. 

In a meeting with industry players last month, it was noted that such a structure could create ‘power centres’ within the exchanges, creating imbalance, said a source. 

“Reporting separately and meetings without the MD could be seen as micromanagement and lack of confidence on the board of the exchanges. This could undermine the stature of the MD. The regulator is also considering these challenges,” said a person with knowledge of the developments. 

Remuneration of key managerial personnel (KMPs) has also been a key point of debate. Another source said a variable pay of up to 25 per cent could be prescribed in advance for each year while the rest of up to 75 per cent could be fixed. The variable pay could be disbursed at the end of the financial year, based on certain parameters.

 

During its meeting with industry players, Sebi also considered setting up a different committee to oversee governance of MIIs, instead of discussing them at the Secondary Market Advisory Committee (SMAC), where several other players, such as stock brokers and market representatives, are present. As matters of MII governance are not product related, they could be discussed in a separate committee, according to sources. 

Emailed queries sent to Sebi remained unanswered until press time. 

Considering the role of exchanges as first-line regulators and public-interest utilities, the market regulator had floated the consultation paper on strengthening governance at MIIs in June. Sebi had warned that any failure or misgovernance at these critical institutions could adversely affect both the securities market and the broader economy.

 

According to the proposal, all heads within the different MII verticals would report to the respective EDs. Sebi had also proposed defining roles for MD and several other KMPs to bring clarity.

 

India’s capital market has grown manifold, reaching a market capitalisation of ₹450 trillion and more than 200 million demat account holders.

 

Governing governance 

*  In June, Sebi proposed appointing EDs in MIIs to strengthen governance

  *  EDs were to have a similar stature as the MD

  *  Key committees were proposed to meet separately with EDs, without the MD

  *  Industry has raised concerns over regulatory micromanagement, lack of board confidence,  creation of ‘power centres’