SEBI Strengthens Governance Norms for Market Infrastructure Institutions

In a move to enhance the governance standards and maintain transparency within market infrastructure institutions, the Securities and Exchange Board of India (SEBI) has announced a crucial update. The regulator has introduced a mandatory cooling-off period for non-independent directors and public interest directors before they can be appointed to competing institutions such as stock exchanges, clearing corporations, or depositories. This decision follows SEBI’s review in March regarding the appointment norms of key officials in these entities.

Revised Norms for Non-Independent Directors

As per two separate notifications issued by SEBI on April 30, amendments have been made to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, also known as SECC Regulations, along with the Depositories and Participants Regulations, 2018. According to these updates, a non-independent director currently serving on the board of a recognised market infrastructure institution will now require a mandatory cooling-off period, along with prior SEBI approval, before they can be appointed to a competing institution.

SEBI stated, “Non-independent director on the governing board of a recognised stock exchange or a recognised clearing corporation may be appointed in another recognised stock exchange or a recognised clearing corporation or a depository with the prior approval of the Board, only after a cooling-off period as may be specified by the governing board of such recognised stock exchange or recognised clearing corporation.”

These regulatory modifications are designed to prevent potential conflicts of interest and ensure ethical transitions of key individuals within the financial ecosystem.

Clarity on Public Interest Director Appointments

In addition to non-independent directors, the regulatory framework now addresses the reappointment of public interest directors. SEBI clarified that a public interest director, after completing their term at an MII, may be appointed for a further term of three years in another stock exchange, clearing corporation, or depository, subject to the prior approval of SEBI.

However, the regulator emphasised that the cooling-off period would apply specifically in cases where the individual is being appointed as a public interest director in a competing market infrastructure institution. This provision serves to strengthen the impartiality and effectiveness of governance in the financial markets.

Read More: SEBI Introduces Standardised Audit Report Format for Market Infrastructure Institutions

Conclusion

These regulatory updates by SEBI mark a significant stride towards enhancing the governance framework of Market Infrastructure Institutions. By instituting a formal cooling-off period and mandating prior approval for critical appointments, SEBI aims to reinforce market integrity and prevent undue influence within key market institutions. The move underscores SEBI’s continued commitment to safeguarding the robustness and transparency of India’s capital markets.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.