Description

SEBI introduces amendments to governance framework for Stock Exchanges, Clearing Corporations and Depositories, mandating Executive Directors for critical operations and regulatory compliance verticals, effective December 20, 2025.

Summary

SEBI has issued amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 to strengthen governance of Market Infrastructure Institutions (MIIs). The amendments mandate appointment of Executive Directors for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances), establish their roles and reporting structures, and define responsibilities of MD, CTO and CISO positions.

Key Points

  • Amendments approved by SEBI Board on September 12, 2025, issued via Gazette Notifications on November 21, 2025
  • Executive Directors (EDs) for two verticals must be appointed as members of MII Governing Board
  • Vertical 1: Critical Operations
  • Vertical 2: Regulatory, compliance, risk management and investor grievances
  • EDs must be appointed through open advertisement in national daily newspapers
  • At least two names without preference order to be forwarded to SEBI for approval
  • ED compensation requires SEBI approval and cannot be changed without prior Board approval
  • EDs report to Managing Director for all purposes
  • Public Interest Directors (PIDs) must assess ED performance annually
  • Standing Committee on Technology (SCOT) to hold separate quarterly meetings with Vertical 1 ED without MD presence
  • Exemptions available on case-by-case basis for MIIs facing genuine practical difficulties

Regulatory Changes

Amendments to SECC Regulations, 2018 and D&P Regulations, 2018:

  1. Executive Director Appointments: Two EDs required - one for Critical Operations (Vertical 1) and one for Regulatory/Compliance/Risk Management/Investor Grievances (Vertical 2)

  2. Board Membership: EDs of both verticals become members of MII Governing Board

  3. Selection Process: Open advertisement mandatory in all editions of at least one national daily; candidates must have adequate experience and qualifications relevant to respective verticals

  4. SEBI Approval: MII must forward at least two names without preference order to SEBI for approval along with proposed compensation structure

  5. Reporting Structure: EDs report to MD for all purposes, but SCOT holds independent quarterly meetings with Vertical 1 ED

  6. Performance Evaluation: Annual assessment mechanism similar to MD evaluation, overseen by PIDs

  7. Managing Director Roles: Clarified roles and responsibilities, including restrictions on directorship in other companies

  8. CTO and CISO Appointments: Defined appointment process, roles and responsibilities

Compliance Requirements

For All Market Infrastructure Institutions (Stock Exchanges, Clearing Corporations, Depositories):

  1. Immediate Action: Implement amended provisions by December 20, 2025 (30 days from Gazette publication on November 21, 2025)

  2. ED Recruitment: Advertise ED positions in all editions of at least one national daily newspaper

  3. Candidate Submission: Forward at least two names per ED position to SEBI without preference order, including:

    • Candidate qualifications and experience relevant to vertical
    • Proposed compensation package for SEBI approval

  4. Timeline for Existing EDs: Submit replacement names at least two months before existing ED’s last working day

  5. Governance Structure: Ensure EDs are appointed as Governing Board members

  6. Performance Management: Establish annual performance evaluation mechanism for EDs overseen by PIDs

  7. Reporting Lines: Formalize ED reporting to MD for all operational purposes

  8. SCOT Meetings: Schedule separate quarterly meetings between SCOT and Vertical 1 ED (without MD/other executives present)

  9. Compensation Changes: Obtain SEBI approval before modifying ED compensation terms and conditions

  10. Exemption Process: MIIs facing genuine difficulties may apply to SEBI for case-by-case exemption evaluation

Important Dates

  • September 12, 2025: SEBI Board approves amendments
  • November 21, 2025: Gazette Notifications issued (No. SEBI/LAD-NRO/GN/2025/276 and No. SEBI/LAD-NRO/GN/2025/275)
  • December 12, 2025: Circular issued to all MIIs
  • December 20, 2025: Effective date - amended provisions come into force (30 days from Gazette publication)
  • Ongoing: ED names to be submitted at least two months before existing ED’s last working day
  • Quarterly: SCOT meetings with Vertical 1 ED
  • Annual: Performance evaluation of EDs by PIDs

Impact Assessment

Market-Wide Impact:

This circular represents a significant governance overhaul for the entire securities market infrastructure. The mandatory appointment of specialized Executive Directors creates additional accountability layers and ensures dedicated leadership for critical operations and regulatory compliance functions.

Operational Impact:

  • Enhanced Oversight: Dual ED structure provides focused leadership for critical operations and compliance verticals
  • Board Strengthening: ED membership on Governing Board brings operational expertise to governance decisions
  • Technology Governance: Independent SCOT-Vertical 1 ED meetings enable candid assessment of technology risks without management presence
  • Talent Competition: Open advertisement requirement may intensify competition for qualified candidates across MIIs
  • Cost Implications: Additional senior executive positions increase operational costs for MIIs

Regulatory Impact:

  • Public Interest Focus: Strengthened governance framework reinforces MII role in serving public interest amid market growth
  • Risk Mitigation: Dedicated Vertical 2 ED reduces compliance and risk management lapses
  • SEBI Control: Approval requirements for ED appointments and compensation enhance regulatory oversight
  • Flexibility: Case-by-case exemptions acknowledge heterogeneous nature of MIIs (size, financial health, growth stage)

Strategic Considerations:

The circular acknowledges phenomenal securities market growth in recent years - increased capitalization, trading volumes, technology adoption, investor base and intermediaries - necessitating stronger MII governance to prevent systemic risks that could adversely impact markets and the broader economy. The amendments balance standardization with flexibility through exemption provisions for MIIs facing genuine practical difficulties.

Impact Justification

Fundamental governance reforms for all Market Infrastructure Institutions with mandatory structural changes to executive leadership and reporting mechanisms, affecting the entire securities market ecosystem.