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SEBI on strengthening of MIIs

Published: 18th Nov, 2022

Context

Recently, a SEBI panel proposed measures to increase the role of the governing board, stock exchange committees, and other market infrastructure institutions (MIIs) in fighting operational flaws.

What are Market Infrastructure Institutions?

  • Market Infrastructure Institutions include stock exchanges, depositories, and clearing houses, all of which play an important role in the nation's economic infrastructure.

About

Key highlights of the recommendations:

  • Ensuring Transparency & Accountability: After reviewing the issue, it has made recommendations to improve accountability and transparency, as well as revised the policy on the preservation and transmission of information held by MIIs.
  • Code of Conduct to be improved: It also advised to revisit the code of conduct and code of ethics for directors of the governing board and key managerial persons (KMPs) activities.
  • Working of Boards: It was proposed that, to increase the integrity of the MII's board, at least two-thirds of its members be Public Interest Directors.
    • The existing process of appointment of Public Interest Directors (PIDs), non-independent directors, and managing directors should be rationalized by mapping certain expertise to PIDs while maintaining an overall balance of expertise required by the board.
  • Divided into categories: According to the suggestion, the activities of MIIs should be divided into three verticals -
    • Critical operations;
    • Regulatory, compliance, and risk management; and
    • Other functions include business development.
  • Maintain the Right to Be Informed: To increase transparency, MIIs should release the agenda as well as the minutes of their board meetings, bearing in mind their function as a 'first-level regulator'.
    • Video and audio recordings of the meetings of the board of the MII should be made mandatory.
  • Assigning higher positions and powers: The definition of KMPs should be changed to cover employees based on the importance of activities carried out by them and their relative hierarchy within the MII. Furthermore, the MII must explicitly define the roles and duties of these KMPs.

What are the particular Indian institutions that are eligible as MIIs?

  • The SEBI recognizes seven stock exchanges, including the BSE, NSE, Multi Commodity Exchange of India, and Metropolitan Stock Exchange of India.
  • MIIs are two depositories tasked with the custody of assets and facilitating their trade and transfer.
    • Central Depository Services Ltd.
    • National Securities Depository Ltd.
  • The regulator also names seven clearing houses, including the Multi Commodity Exchange Clearing Corporation. The Clearing houses, because of their part, assist in validating and finalizing securities deals, as well as ensuring that both buyers and sellers meet their responsibilities.
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