Description

SEBI introduces amendments to strengthen governance of Stock Exchanges, Clearing Corporations and Depositories through new provisions for Executive Directors, reporting structures, and performance evaluation mechanisms.

Summary

SEBI has approved 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 critical verticals, establish reporting structures, and enhance oversight mechanisms. The provisions come into force on December 20, 2025.

Key Points

  • MIIs must appoint Executive Directors for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  • EDs shall be members of the Governing Board of the MII
  • Appointments must be through open advertisement in national dailies
  • At least two candidates must be forwarded to SEBI for approval without order of preference
  • ED compensation requires prior SEBI approval and cannot be changed without Board approval
  • EDs report to the Managing Director for all purposes
  • Public Interest Directors must conduct annual performance evaluation of EDs
  • Standing Committee on Technology (SCOT) to hold separate quarterly meetings with ED of Vertical 1
  • MIIs facing genuine difficulties may seek time-bound exemptions on case-by-case basis

Regulatory Changes

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

  • Gazette Notifications No. SEBI/LAD-NRO/GN/2025/276 and No. SEBI/LAD-NRO/GN/2025/275 dated November 21, 2025
  • New provisions regarding roles and responsibilities of Managing Director
  • Restrictions on MD’s directorship in other companies
  • Mandatory appointment of Executive Directors, Chief Technology Officer (CTO) and Chief Information Security Officer (CISO)
  • Enhanced roles and responsibilities for ED, CTO and CISO positions

Appointment Process:

  • Open advertisement mandatory in all editions of at least one national daily
  • Candidates must have adequate experience and qualification relevant to respective verticals
  • Minimum two months’ notice required before existing ED’s term completion

Reporting and Oversight:

  • EDs report to MD for all purposes
  • SCOT holds quarterly meetings with ED of Vertical 1 (without MD and other executives present)
  • SCOT independently assesses performance of ED of Vertical 1
  • Annual performance evaluation mechanism for EDs similar to MD evaluation

Compliance Requirements

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

  1. Appoint Executive Directors for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  2. Ensure EDs are members of the Governing Board
  3. Conduct open advertisement for ED positions in national dailies
  4. Forward at least two candidate names to SEBI for approval
  5. Obtain SEBI approval for ED compensation
  6. Establish annual performance evaluation mechanism for EDs conducted by Public Interest Directors
  7. Ensure SCOT holds separate quarterly meetings with ED of Vertical 1
  8. Submit applications for exemptions (if applicable) with justification for genuine practical difficulties

Notification Requirements:

  • Inform SEBI at least two months before existing ED’s last working day when seeking reappointment or new appointment

Important Dates

  • September 12, 2025: SEBI Board approves amendments
  • November 21, 2025: Gazette Notifications issued
  • December 20, 2025: Amended provisions come into force (30th day from gazette publication)
  • Ongoing: SCOT quarterly meetings with ED of Vertical 1 required
  • Annual: Performance evaluation of EDs by Public Interest Directors

Impact Assessment

Market-Wide Impact:

The amendments represent a significant governance reform affecting all Market Infrastructure Institutions. The growth in market capitalization, trading volumes, technology adoption, and investor base has amplified the critical role of MIIs, making robust governance essential to prevent adverse impacts on securities markets and the broader economy.

Institutional Impact:

  • Enhanced accountability through mandatory ED positions for critical operations and regulatory functions
  • Improved checks and balances with EDs as Governing Board members
  • Greater independence in technology oversight through SCOT’s separate meetings with ED of Vertical 1
  • Potential exemptions available for smaller or developing MIIs facing genuine difficulties

Operational Impact:

  • MIIs must establish formal recruitment processes for senior leadership positions
  • Additional governance layer requiring SEBI approval for appointments and compensation
  • Enhanced transparency through open advertisement requirements
  • Strengthened oversight of critical operations, technology, and regulatory compliance functions

Stakeholder Impact:

Based on feedback from stakeholders, public comments, and recommendations from SEBI’s Secondary Market Advisory Committee (SMAC), these provisions aim to ensure MIIs act primarily in public interest given their critical role in market infrastructure.

Impact Justification

Major regulatory reform affecting governance structure of all Market Infrastructure Institutions (Stock Exchanges, Clearing Corporations, Depositories) with mandatory appointment of Executive Directors and new reporting requirements effective December 20, 2025