SEBI Proposes New Governance Norms For Exchanges, Clearing Corps

The Securities and Exchange Board of India proposed on Tuesday several changes in the board of market infrastructure institutions, which include exchanges, clearing corporations and depositories.

The managing directors of the MIIs may only be allowed to serve as non-executive directors in a narrow category of entities, according to the consultation paper, Strengthening Governance of the MIIs, that was uploaded on the SEBI website.

For executive directors of the MIIs, the proposed rules are even stricter. They will not be permitted to serve on the board of any other company, barring subsidiaries of the MII they are associated with.

These suggestions follow concerns that the absence of clear norms on external directorships can give rise to governance risks, such as conflicts of interest, divided focus and reputational issues.

The capital markets regulator notes that the MD of an MII functions as a full-time first-line regulator and the growing complexity of the securities market makes undivided attention essential.

The proposals also draw a parallel with the banking industry, where similar restrictions are already in place. SEBI points out that under the Banking Regulation Act, 1949, whole-time chairpersons or MDs of banking companies face significant limits on their directorships in other companies, with limited exceptions.

Alongside the directorship norms, SEBI has also laid out the roles and responsibilities of the chief technology officer of an MII.

The CTO will be accountable for managing all technology-related systems, including design, infrastructure, operations, IT policy and the overall IT Risk Management Framework. The position will also entail responsibility for identifying and mitigating risks across all IT-related functions.

The regulator is now seeking public comments on the proposed governance changes. Stakeholders have time till July 15.