SEBI Proposes Stronger Governance Framework for Market Institutions

by Ashok

Posted on June 25, 2025

SEBI Seeks Better Governance at Market Institutions: Key Proposals and Rationale

The Securities and Exchange Board of India (SEBI) has proposed a significant overhaul of the governance framework for market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations, and depositories. This move comes amid rapid growth in investor participation, trading volumes, and the complexity of market operations, necessitating a shift toward stronger public-interest safeguards and operational resilience.

Key Proposals

• Appointment of Two Executive Directors (EDs):
  • Each MII will be required to appoint two EDs to its governing board.
  • One ED will oversee critical operations (Vertical 1), and the other will be responsible for regulatory, compliance, risk management, and investor grievances (Vertical 2).
  • These EDs will be designated as Key Management Personnel (KMPs) and will have stature comparable to the Managing Director (MD), reporting directly to the board and SEBI.
• Clear Role Demarcation:
  • The roles and responsibilities of the MD, the two EDs, and other key managerial personnel (such as the Chief Technology Officer, Chief Information Security Officer, Chief Risk Officer, and Compliance Officer) will be clearly defined to eliminate ambiguities and overlaps.
• Limiting External Directorships:
  • To prevent conflicts of interest, SEBI proposes stricter norms on external directorships for MDs and EDs.
  • The MD may serve as a non-executive director only in Section 8 companies or unlisted government entities not engaged in commercial activity, while EDs will be barred from directorships in any company except MII subsidiaries.
• Strengthening Other Governance Mechanisms:
  • Enhanced roles for the audit committee, especially in handling whistleblower complaints, with requirements for timely investigation and reporting to the governing board.
  • Increased emphasis on adopting Regulatory Technology (RegTech) and Supervision Technology (SupTech) to streamline compliance, reporting, and supervisory functions.

Rationale Behind the Reforms

• Addressing Growth and Complexity:
  • MIIs have seen a sharp rise in investor base, revenue, and market activity, making their operations more critical and complex.
  • The current structure, where the MD holds overarching authority, has led to disparities in authority and compensation, and potential gaps in oversight—especially in technology, risk management, and investor protection.
• Prioritizing Public Interest:
  • SEBI emphasizes that MIIs must place public interest, compliance, and systemic stability above commercial considerations, reflecting their role as first-line regulators in the market ecosystem.
• Enhancing Accountability and Independence:
  • By embedding empowered EDs and clarifying leadership roles, SEBI aims to ensure that critical functions are managed by capable leaders who can act independently of commercial pressures.
  • Restrictions on external directorships are designed to preserve the neutrality and integrity of MII leadership.

Next Steps

• SEBI has released these proposals in a consultation paper and is seeking public feedback until July 15, 2025.
• Amendments to relevant regulations (SECC and D&P Regulations, 2018) will be considered after reviewing stakeholder input.

Summary:
SEBI’s proposed governance reforms for MIIs aim to embed public interest, operational clarity, and accountability at the highest levels of market infrastructure, reflecting the evolving scale and complexity of India’s capital markets. The new framework seeks to prevent governance failures, ensure robust internal systems, and sustain market integrity as MIIs continue to grow in criticality and influence.

Ref: SEBI Proposes Amendments in Governance Framework of Market Infrastructure Institutions
Sebi proposes tougher governance norms for market institutions