Description

SEBI introduces amendments to strengthen governance of Stock Exchanges, Clearing Corporations and Depositories through enhanced roles for Managing Directors, Executive Directors, CTOs and CISOs.

Summary

SEBI has approved amendments to SECC Regulations, 2018 and D&P Regulations, 2018 to strengthen governance of Market Infrastructure Institutions (Stock Exchanges, Clearing Corporations and Depositories). The amendments mandate appointment of Executive Directors for two verticals - Critical Operations and Regulatory/Compliance/Risk Management, with specific reporting structures and performance evaluation mechanisms. These provisions come into force on December 20, 2025.

Key Points

  • SEBI Board approved amendments on September 12, 2025 based on stakeholder feedback and SMAC recommendations
  • Gazette Notifications issued on November 21, 2025 (SEBI/LAD-NRO/GN/2025/276 and SEBI/LAD-NRO/GN/2025/275)
  • Two Executive Directors mandatory: ED Vertical 1 (Critical Operations) and ED Vertical 2 (Regulatory, compliance, risk management, investor grievances)
  • Both EDs will be members of the Governing Board of the MII
  • EDs must be appointed through open advertisement in national daily newspapers
  • Exemptions available on case-by-case basis for MIIs facing genuine practical difficulties

Regulatory Changes

Appointment Process:

  • MIIs must advertise ED positions in all editions of at least one national daily
  • Applicants must have adequate experience and qualification relevant to respective verticals
  • At least two names without order of preference must be forwarded to SEBI for approval
  • SEBI approval required for both appointment and compensation of EDs
  • Compensation terms cannot be changed without prior SEBI Board approval

Reporting Structure:

  • EDs of Vertical 1 and 2 report to Managing Director for all purposes
  • Standing Committee on Technology (SCOT) shall hold separate quarterly meetings with ED Vertical 1 without presence of MD and other executives
  • SCOT shall independently assess performance

Performance Evaluation:

  • Public Interest Directors (PIDs) must ensure annual performance evaluation of EDs similar to MD evaluation mechanism

Compliance Requirements

For All MIIs (Stock Exchanges, Clearing Corporations, Depositories):

  1. Appoint two Executive Directors for designated verticals by December 20, 2025
  2. Conduct open advertisement process for ED recruitment
  3. Submit at least two candidate names to SEBI for approval
  4. Obtain SEBI approval for ED compensation packages
  5. Submit replacement names at least two months before existing ED’s last working day
  6. Implement annual performance evaluation mechanism for EDs
  7. Arrange quarterly SCOT meetings with ED Vertical 1 (without MD presence)

Exemption Process:

  • MIIs facing genuine practical difficulties may seek time-bound exemption from SEBI
  • Exemptions evaluated on case-by-case basis considering size, financial health, and growth stage

Important Dates

  • September 12, 2025: SEBI Board approved amendments
  • November 21, 2025: Gazette Notifications issued
  • December 20, 2025: Amended provisions come into force (30 days from gazette publication)
  • Ongoing: At least two months’ notice required before existing ED term completion

Impact Assessment

Market Infrastructure Impact: These amendments represent a significant governance overhaul for all Market Infrastructure Institutions in India. The phenomenal growth in securities markets - increased market capitalization, trading volumes, technology adoption, and investor base - has necessitated stronger governance frameworks to protect public interest.

Operational Impact:

  • MIIs must restructure management hierarchy with two mandatory Executive Director positions
  • Enhanced accountability through dual vertical structure separating critical operations from regulatory/compliance functions
  • Increased operational costs due to additional executive positions and compensation requirements
  • Greater oversight through mandatory quarterly SCOT meetings and independent performance assessments

Governance Impact:

  • Strengthened checks and balances with EDs as Governing Board members
  • Enhanced transparency through open advertisement requirements
  • SEBI retains control over ED appointments and compensation
  • Independent performance evaluation by Public Interest Directors ensures accountability

Compliance Burden: Moderate to high for smaller MIIs; exemption mechanism provides flexibility for institutions facing genuine difficulties in immediate implementation.

Impact Justification

Fundamental governance changes affecting all Market Infrastructure Institutions with mandatory Executive Director appointments and new reporting structures, effective December 20, 2025