Description

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

Summary

SEBI has approved significant 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 introduce mandatory appointment of Executive Directors for two critical verticals, establish new reporting structures, and define enhanced roles and responsibilities for key positions including MD, ED, CTO, and CISO. These changes come into force on December 20, 2025.

Key Points

  • Amendments approved by SEBI Board on September 12, 2025 and published via Gazette Notifications on November 21, 2025
  • Two Executive Director positions made mandatory: Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  • Executive Directors will be members of the Governing Board of MIIs
  • EDs must be appointed through open advertisement in national daily newspapers
  • MIIs must forward at least two candidates without preference ranking to SEBI for approval
  • Public Interest Directors responsible for annual performance evaluation of EDs
  • Standing Committee on Technology (SCOT) to hold separate quarterly meetings with ED of Vertical 1
  • Exemptions available for MIIs facing genuine practical difficulties on case-by-case basis

Regulatory Changes

SECC Regulations 2018 and D&P Regulations 2018 Amendments:

  • Enhanced roles and responsibilities for Managing Directors with restrictions on directorships in other companies
  • Mandatory appointment of Executive Directors for two verticals with specific portfolios
  • New requirements for appointment, roles and responsibilities of CTO and CISO
  • EDs to report to MD for all purposes while maintaining independent quarterly assessments by SCOT
  • Compensation terms for EDs require prior SEBI approval and cannot be changed without Board consent

Compliance Requirements

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

  • Appoint Executive Directors for Vertical 1 and Vertical 2 positions
  • Conduct open advertisement in all editions of at least one national daily for ED recruitment
  • Submit at least two candidate names to SEBI for approval without order of preference
  • Seek SEBI approval for ED compensation packages
  • Implement annual performance evaluation mechanism for EDs by PIDs
  • Forward replacement ED names to SEBI at least two months before existing ED’s last working day
  • Establish quarterly SCOT meetings with ED of Vertical 1 (without MD presence)

Exemption Process:

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

Important Dates

  • September 12, 2025: SEBI Board approves amendments
  • November 21, 2025: Gazette Notifications issued (SEBI/LAD-NRO/GN/2025/276 and SEBI/LAD-NRO/GN/2025/275)
  • December 20, 2025: Amended provisions come into force (30 days from gazette publication)
  • Ongoing: Quarterly SCOT meetings with ED Vertical 1 required
  • Ongoing: Minimum 2 months advance notice required for ED replacement submissions

Impact Assessment

Market-Wide Impact: This circular represents a fundamental restructuring of governance frameworks for all Market Infrastructure Institutions in India. The phenomenal growth in securities markets—driven by increased market capitalization, trading volumes, technology adoption, and expanded investor base—necessitates stronger institutional oversight. Any governance lapses at MIIs could adversely impact the entire securities market and broader economy.

Operational Impact:

  • MIIs must restructure leadership teams to accommodate mandatory ED positions
  • Enhanced separation of duties through distinct verticals (Critical Operations vs. Regulatory/Compliance)
  • Increased transparency through independent performance assessments and SCOT oversight
  • Potential recruitment challenges for specialized roles requiring specific experience and qualifications

Compliance Burden: Moderate to high implementation burden initially, with ongoing compliance requirements for recruitment, performance evaluation, and reporting. Smaller MIIs may face resource constraints, though exemption provisions provide flexibility.

Long-term Benefits: Strengthened institutional governance, improved risk management, enhanced investor protection, and alignment with international best practices for market infrastructure regulation.

Impact Justification

Major governance reform affecting all Market Infrastructure Institutions with mandatory structural changes to leadership and reporting mechanisms, effective December 20, 2025