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 issued amendments to the SECC Regulations, 2018 and D&P Regulations, 2018 to strengthen governance of Market Infrastructure Institutions (MIIs) including Stock Exchanges, Clearing Corporations and Depositories. The amendments introduce enhanced provisions for Managing Directors’ roles and responsibilities, restrictions on MD directorships in other companies, and mandatory appointment of Executive Directors for two verticals (Critical Operations and Regulatory/Compliance), along with defined roles for CTOs and CISOs. These provisions come into force on December 20, 2025.

Key Points

  • Amendments approved by SEBI Board on September 12, 2025 and notified via Gazette on November 21, 2025
  • Two Executive Directors (EDs) must be appointed for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  • Both EDs shall be members of the Governing Board of the MII
  • ED appointments require open advertisement in national daily newspapers
  • At least two names without preference order must be forwarded to SEBI for approval
  • ED compensation requires prior SEBI approval and cannot be changed without SEBI consent
  • EDs report to the Managing Director for all purposes
  • Public Interest Directors (PIDs) must conduct annual performance evaluations of EDs
  • Standing Committee on Technology (SCOT) shall hold separate quarterly meetings with ED of Vertical 1 without MD presence

Regulatory Changes

Gazette Notifications:

  • SEBI/LAD-NRO/GN/2025/276 (SECC Regulations amendment)
  • SEBI/LAD-NRO/GN/2025/275 (D&P Regulations amendment)
  • Both dated November 21, 2025

Key Amendments:

  1. Mandatory appointment of two Executive Directors with board membership
  2. Defined reporting structure with EDs reporting to MD
  3. Enhanced oversight through separate SCOT meetings with Vertical 1 ED
  4. Transparent recruitment process through open advertisements
  5. SEBI approval required for ED appointments and compensation
  6. Annual performance evaluation mechanism for EDs by PIDs
  7. Provisions for exemptions on case-by-case basis for MIIs facing genuine practical difficulties

Compliance Requirements

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

  1. ED Recruitment:

    • Advertise ED positions in all editions of at least one national daily
    • Ensure applicants have adequate experience and qualifications for respective verticals
    • Submit at least two names to SEBI without preference order
    • Seek simultaneous approval for ED compensation

  2. Succession Planning:

    • Forward names to SEBI at least two months before existing ED’s last working day

  3. Governance:

    • Include both EDs as Governing Board members
    • Establish annual performance evaluation mechanism for EDs similar to MD evaluation
    • Ensure PIDs oversee ED performance assessments

  4. Reporting Structure:

    • Implement reporting line where EDs report to MD for all purposes
    • Arrange separate quarterly SCOT meetings with Vertical 1 ED (without MD presence)

  5. Exemption Process:

    • MIIs facing genuine difficulties may seek time-bound exemptions from SEBI (evaluated case-by-case)

Important Dates

  • September 12, 2025: SEBI Board approval of amendments
  • November 21, 2025: Gazette notification published
  • December 20, 2025: Effective date (30 days from gazette publication) - all amended provisions come into force

Impact Assessment

Market Infrastructure Level:

  • Strengthens governance framework for critical market institutions managing increased market capitalization, trading volumes, and investor base
  • Reduces concentration of operational and regulatory oversight in single executive position
  • Enhances accountability through dual ED structure with separate verticals

Operational Impact:

  • MIIs must restructure executive management to accommodate two board-level EDs
  • Increased governance costs due to additional senior executive positions
  • Enhanced checks and balances through independent SCOT oversight of technology operations
  • Potential transition challenges for smaller MIIs (exemption mechanism available)

Systemic Benefits:

  • Addresses risk of lapses in critical institutions that could adversely impact securities market and broader economy
  • Improves separation of critical operations from regulatory/compliance functions
  • Strengthens public interest orientation of MIIs
  • Creates transparent appointment process through mandatory open advertisements

Compliance Burden:

  • High initial implementation effort for organizational restructuring
  • Ongoing compliance through annual performance evaluations and quarterly SCOT meetings
  • SEBI approval process adds regulatory oversight layer for compensation and appointments

Impact Justification

Fundamental governance changes for all Market Infrastructure Institutions affecting Stock Exchanges, Clearing Corporations and Depositories with mandatory Executive Director appointments and revised reporting structures effective December 20, 2025