Sebi proposes ED roles, new norms to strengthen governance at MIIs

The regulator has proposed appointing two executive directors to MII boards for regulatory compliance and operations, with defined roles distinct from the MD

The Securities and Exchange Board of India (Sebi) on Tuesday proposed an overhaul of the governing board of market infrastructure institutions (MIIs) -- such as stock exchanges, clearing corporations, and depositories.

 

The market regulator has proposed the appointment of two executive directors (EDs) on the governing board for critical operations, regulatory compliance, and investor grievances. It is also considering clear definitions on the roles and responsibilities of the MD, the proposed EDs, and other key managerial personnel (KMPs) like the chief technology officer (CTO).

 

Currently, the governing board of an MII includes the managing director (MD), non-independent directors, and public interest directors (PIDs).

 

 

The market regulator noted there was a significant gap in compensation and stature between the MD and other key officials, with the MD having much higher authority across MII verticals. 

 

The overhaul comes at a time when Sebi has been emphasising prioritisation of public interest over commercial interests and the role of MIIs as first-line regulators.

 

“To ensure adequate resource allocation to Verticals 1 and 2, and to ensure that these critical functions are not constrained by commercial considerations, capable and empowered KMPs of stature are needed to head these verticals,” said Sebi in a consultation paper floated on Tuesday.

 

Sebi added that having these senior officials on the board will ensure timely communication of concerns to the regulator for corrective actions. 

 

While the MD will continue to oversee the overall functioning, the appointed EDs must be of comparable stature to the MD. Further, the appointment and re-appointment will be similar to that of the MD, requiring prior approval from Sebi. 

 

Sebi has recommended the ED meet the regulatory oversight and risk management committees quarterly without the presence of the MD.

 

EDs will be required to report to Sebi and the governing board every three months.

 

Apart from company subsidiaries, Sebi is also looking to tweak the norms on external directorships of MDs.

 

MDs of MIIs may be permitted to be appointed as non-executive directors on the board of an unlisted state or central government company not involved in any commercial activity and non-profit firms registered under Section 8 of the Companies Act, 2013, according to the proposals.

 

However, EDs will not serve on the board of any other company, other than the subsidiaries of the MII.

 

The proposals come following a long trail of matters in which the governance at MIIs came into question. 

F&O stock list set to shrink 

The list of companies eligible for trading in the futures and options (F&O) segment is set to shrink after the National Stock Exchange (NSE) has announced deletion of eight stocks. Currently, 220 stocks are eligible for trading in the derivatives segment, while four new stocks are will get added from Friday.  These are 360 One Wam, Amber Enterprises India, Kfin Technologies and PG Electroplast. NSE, however, has announced exclusion of Aditya Birla Fashion and Retail, Adani Total Gas, CESC, Granules India, IRB Infrastructure Developers, Jindal Stainless, Poonawalla Fincorp and SJVN.  Their exclusion will become effective from August 29. Inclusion in the F&O segment is considered to be a positive development for a company as it opens the door for inclusion in various indices.   Last year, the market regulator Securities and Exchange Board of India (Sebi) had revised the criteria for inclusion and exclusion of stocks from the F&O segment. Ahead of the revision, only 182 stocks were available for trading in the derivatives segment.  - BS Reporter