Sebi strengthens governance at MIIs, exchanges; approves new vertical heads

Mumbai, Sep 12 (PTI) Markets regulator Sebi on Friday decided to strengthen the governance framework of market infrastructure institutions including stock exchanges by mandating the appointment of two executive directors (EDs) to bolster operational oversight.

The framework, if implemented, is aimed at ensuring MIIs (market infrastructure institutions) -- which have witnessed sharp growth in investor base, revenue, and market activity -- place public interest, compliance, and systemic stability above commercial considerations.

The two EDs, to be designated as KMPs (key managerial personnels), would head "critical operations" and "regulatory, compliance, risk management, and investor grievances", respectively, and be inducted into the MII's governing board alongside the Managing Director (MD).

Currently, the MD holds overarching authority across all verticals, but Sebi noted that functions related to technology, risk management and investor protection need empowered leadership to prevent governance failures.

Also, Sebi has strengthened the roles of other KMPs, including Chief Technology Officer, Chief Information Security Officer, Chief Risk Officer, and Compliance Officer to ensure robust internal systems.

Additionally, Sebi board has established clear norms for the directorships of MDs and the proposed EDs of an MII in other companies.

"In order to instil a culture that prioritises regulatory and operational excellence in public interest at both the Governing Board and operating levels of MIIs, Sebi board approved the appointment of two EDs of appropriate stature and independence as heads of Vertical 1 and Vertical 2, who would also serve on the Governing Board of the MII," Sebi Chairman Tuhin Kanta Pandey said here after the board meeting.

To ensure orderly functioning and development of the securities market, Sebi said it's crucial that MIIs give priority to, and are seen to give priority to, public interest (represented by Vertical 1 - Critical Operations, and Vertical 2 - Regulatory, Compliance, Risk Management, and Investor Grievances, of the MII) over commercial interests and business development (Vertical 3).

Such appointments will also strengthen the succession planning within MIIs, Sebi noted.

While the EDs will report to the MD of the MII, the NRC of the governing board would take inputs from the MD and the appropriate committee of the Governing Board in finalizing the appraisal of the EDs.

The regulator said these measures were necessary in light of the growing criticality and complexity of MIIs, as evidenced by rising demat accounts, increased trading volumes, and swelling profits.

"Strengthening of governance of MIIs is imperative in the wake of exponential growth of securities markets in recent years. Currently, there is a significant gap in terms of stature and standing between the MD and the KMPs of Verticals 1 and 2 of the MIIs," Sebi said.

Further, the overall roles and responsibilities of the MD and the specific KMPs are not currently prescribed under the regulations and there are no norms regarding the directorships of MD (and the proposed additional EDs) in companies other than subsidiaries.

"Given the vital role MIIs play as first-line regulators and public utilities in the cause of capital formation, these measures shall ensure that MIIs accord highest priority to public interest, technology and operations, and risk and compliance, over commercial considerations," Sebi said. PTI AA SP HVA