Stock exchanges, MIIs to face independent evaluation on eight parameters

Independent evaluation to be done on eight broad parameters

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Stock exchanges and other market infrastructure institutions (MIIs) — considered the backbone of the stock market ecosystem — will soon be tested on eight broad parameters by an independent reviewer.

Based on how they stack up, a rating could be assigned to them.

This will help the Securities and Exchange Board of India (Sebi) to assess their performance and, if required, it can suggest measures to further strengthen their governance mechanism.

Besides the stock exchanges, other MIIs include depositories and clearing corporations.

The evaluation will include parameters such as their activeness as first-level regulators, efforts to bring down compliance cost, reasonability of fee, and information sharing with Sebi will be analysed along with their core operations.

MIIs’ resilience in technology such as supervisory mechanisms and internal risk management framework along with their core functions will have the highest weight in the rating at 40 per cent.

Their function as independent first-level regulators for participants and sharing of alerts or information with Sebi will be given 15 per cent weight in the evaluation. And, this will be followed by measures for investor protection (10 per cent) and reasonability of fees and mechanism to reduce compliance cost (5 per cent), according to the board agenda documents accessed by Business Standard.

“This will enable Sebi to compare performance of MIIs, based on their nature of activity, and monitor trends over time,” said the regulator in the board agenda documents. The evaluation will be carried out by an external agency to be appointed by the MII. However, Sebi will take steps to ensure the independence of the agency.

The market regulator had approved the broader norms for external evaluation of MIIs in its board meeting on June 27.

Sebi, in consultation with the Industry Standards Forum (ISF) for MIIs, has decided on this evaluation mechanism.

Such an external evaluation will take place once in every three years and the first assessment will be done within 12 months of implementation of the framework.

For each sub-parameter, sample key performance indicators, both quantitative and qualitative, have been identified by Sebi in consultation with the pilot ISF. Weights have been assigned to each sub-parameter based on their importance.

“The parameters for external evaluation of statutory committees of MIIs are currently under deliberation,” noted Sebi.

The regulator has said that based on the learnings and feedback, the evaluation parameters can be revised from time to time.