SEBI Strengthens Governance Framework for Market Infrastructure Institutions: Key Amendments and Implications
SEBI has introduced significant amendments to regulations governing Stock Exchanges, Clearing Corporations, and Depositories to enhance accountability, transparency, and oversight within Market Infrastructure Institutions (MIIs). These changes, detailed in recent circulars and notifications, aim to fortify senior management roles and ensure robust market operations.
Mandatory Appointment of Executive Directors and Defined Roles
The cornerstone of these reforms is the mandate for MIIs to appoint two Executive Directors (EDs) with specific responsibilities. The ED for Vertical 1 oversees critical operations, while the ED for Vertical 2 handles regulatory functions, compliance, risk management, and investor grievances. Both EDs must be inducted into the Governing Board, elevating their influence on strategic decisions.
Appointments will follow a transparent process involving public advertisements to promote merit-based selection. Compensation packages require SEBI approval, ensuring alignment with performance and market standards. This structure directly addresses gaps in operational oversight, making senior leadership more accountable.
Key Responsibilities Breakdown
- Vertical 1 ED: Manages core operational functions essential for seamless trading and settlement.
- Vertical 2 ED: Ensures compliance, risk mitigation, and resolution of investor complaints.
- Both report directly to the Managing Director (MD), streamlining communication and decision-making.
Enhanced Reporting, Evaluation, and Regulatory Communication
To bolster transparency, EDs must submit quarterly reports to the Governing Board on developments in their domains. Performance evaluations will be conducted by independent internal committees, promoting objectivity and fairness.
In critical situations, EDs are empowered to escalate issues directly to SEBI, creating a direct channel for regulatory intervention. This provision strengthens oversight and protects public interest by enabling swift action on potential risks.[11]
MIIs are required to amend their byelaws, upgrade internal systems, and notify market participants of these changes. Key roles like Chief Risk Officer (CRO), Chief Technology Officer (CTO), and Chief Information Security Officer (CISO) also see elevated oversight under the amended SECC and D&P Regulations.
Implementation Timeline and Flexibility
- First ED appointment within 6 months of amendments effective date.
- Second ED within 9 months, allowing a phased glide path.
- Smaller MIIs can seek time-bound exemptions on a case-by-case basis, recognizing variations in size and resources.
Broader Regulatory Amendments and Compliance Measures
Beyond governance, SEBI has amended the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, via the Third Amendment Regulations, 2025. A key proviso allows non-independent directors to join another exchange, clearing corporation, or depository after a cooling-off period approved by the Governing Board and SEBI.
For Depositories, new provisions impose 15% per annum interest on delayed or short payments of annual fees, incentivizing timely compliance. Depositories using AI/ML tools bear full responsibility for data protection, output accountability, and legal adherence, regardless of whether tools are in-house or third-party.
These measures, effective from dates like December 20, 2025, for core governance norms, underscore SEBI’s commitment to a resilient market ecosystem.[11]
Impact on Stakeholders
- Investors: Enhanced risk management and grievance redressal boost confidence.
- MIIs: Clearer roles reduce operational ambiguities and improve efficiency.
- Regulators: Direct reporting lines enable proactive monitoring.[9]
Overall, these reforms represent a proactive step towards maturing India’s securities market infrastructure. By embedding accountability at the top, SEBI ensures MIIs prioritize investor protection and operational integrity amid growing market complexities. Market participants should prepare for compliance, including system upgrades and byelaw revisions, to align with the new standards.
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