By Nesil Staney
The Securities and Exchange Board of India (SEBI) on Tuesday proposed strengthening of governance of market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations and depositories, all of which have seen a rapid increase in investor base and volumes, and the vast network of intermediaries.
In a consultation paper, SEBI has proposed to increase the board oversight of key exchange functions, including the ones related to trading, risks, regulatory and compliance operations.
It has mandated appointment of two executive directors (EDs) to the governing board of MIIs to carry out these functions as key management personnel (KMPs). SEBI’s regulatory and risk management committee would meet them every quarter. Currently, only the managing director is required to be a part of the MII’s board.
The executive directors will be of comparable stature to the MD. They will not serve on any other board and will report to the exchange governing board and SEBI every three months.
In the context of high growth, profitability and margins, and given the role MIIs play as first-line regulators and public utilities in the cause of capital formation, strengthening their operational and governance framework is vital, said market participants. The measures proposed are a step to strengthen the market, they said.
“While they (MIIs) operate as efficient and competitive commercial entities, their primary mandate is to serve as crucial public utilities and first-line regulators,” SEBI said. Increased market capitalisation, trading volumes, technology adoption, investor base and market intermediaries have significantly amplified the role of MIIs, it said.
To ensure the orderly functioning and development of the securities market, it is crucial that MIIs give priority to public. Chief technology officer and chief information security officer reflect the increasing complexity and significance of MIIs, said SEBI.