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SEBI on strengthening of MIIs

  • Published
    11th Nov, 2022

Recently, a SEBI panel has recommended measures for strengthening the role played by the governing board, and committees of stock exchanges with other market infrastructure institutions (MIIs) for countering the loopholes in their functioning.

What are Market Infrastructure Institutions?

  • Stock exchanges, depositories, and clearing houses are all Market Infrastructure Institutions and constitute a key part of the nation's vital economic infrastructure. 

Key highlights of the recommendations:

  • The panel to review the functioning of MIIs was set up against the backdrop of the governance lapses observed and the rapidly changing market dynamics of MIIs on technology.
  • Ensure Transparency and Accountability: After viewing the situation, it has recommended steps to enhance accountability and transparency and reviewed the policy on the safekeeping and sharing of information held by MIIs.
  • Code of Conduct to be improved: It also advised revisiting the code of conduct and code of ethics for directors of the governing board and key managerial persons (KMPs) activities.
  • Working of Boards: It suggested that to ensure greater independence of the board of the MII, at least two-thirds of members of the board of the MII shall comprise Public Interest Directors (PIDs).
    • 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 in the board.
  • Divided among categories: Under the proposal, the functions of MIIs should be categorized into three verticals
    • Critical operations;
    • Regulatory, compliance, and risk management; and
    • Other functions include business development.
  • The KMPs heading the functions under the first two verticals should be at par in a hierarchy with the KMPs heading the third vertical.
  • Ensure the Right to be informed: In order to enhance transparency, the MIIs should disclose the agenda and minutes of meetings of their board, keeping in mind their role as a 'first-level regulator'.
    • Video and audio recordings of the meetings of the board of the MII should be made mandatory.
  • Penalize and Regulate: The scope of Sebi's powers under SECC (securities Contract Regulation Act) provisions should include the levy of penalties and taking other disciplinary actions like suspension, barring to attending meetings, etc. on individuals of MII, including its directors, members of statutory committees, KMPs, employees and other persons associated with the MIIs, for any contravention of rules.
  • In exceptional cases including repeated breaches or violations, Sebi should explore harsher options of debarring MIIs from the introduction of new products and restricting their existing activities.
  • Strengthening provisions under the law: Further, the SCRA, the Sebi Act, and the Depositories Act may be reviewed by the regulator to increase the penalty amount that may be applicable for MII and relevant persons associated with MII.
  • 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. Further, the MII must clearly segregate the roles and responsibilities of such KMPs.

What are the specific institutions in India that qualify as MIIs?

  • Among stock exchanges, the SEBI lists seven, including the BSE, the NSE, the Multi Commodity Exchange of India, and the Metropolitan Stock Exchange of India.
  • There are two depositories — charged with the safekeeping of securities and enabling their trading and transfer — that are tagged MIIs: the Central Depository Services Ltd. and the National Securities Depository Ltd.
  • The regulator also lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation. Clearing houses, for their part, help validate and finalize securities trades and ensure that both buyers and sellers honor their obligations.


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