Description

SEBI circular introducing amendments to governance framework for Stock Exchanges, Clearing Corporations and Depositories, including mandatory appointment of Executive Directors and enhanced reporting structures.

Summary

SEBI has issued comprehensive amendments to strengthen governance of Market Infrastructure Institutions (MIIs) - Stock Exchanges, Clearing Corporations and Depositories. The circular mandates appointment of Executive Directors for two key verticals, clarifies roles and responsibilities of Managing Directors, and establishes enhanced reporting structures. These changes were approved by SEBI Board on September 12, 2025, with amendments notified on November 21, 2025, becoming effective from December 20, 2025.

Key Points

  • Mandatory appointment of Executive Directors (EDs) for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  • EDs must be members of the Governing Board of the MII
  • Recruitment through open advertisement in national dailies required
  • 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 permission
  • Public Interest Directors (PIDs) must assess ED performance annually similar to MD evaluation
  • EDs of Verticals 1 and 2 report to Managing Director for all purposes
  • Standing Committee on Technology (SCOT) to hold separate quarterly meetings with ED of Vertical 1
  • MIIs facing genuine difficulties may seek case-by-case exemptions from SEBI

Regulatory Changes

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

  • Introduction of mandatory Executive Director positions for two critical verticals
  • Clarification of Managing Director roles and responsibilities
  • Restrictions on MD directorship in other companies
  • Formalization of Chief Technology Officer (CTO) and Chief Information Security Officer (CISO) appointment requirements
  • Enhanced reporting structures with direct ED-to-MD reporting lines
  • Establishment of quarterly oversight meetings between SCOT and ED of Critical Operations

Gazette Notifications:

  • SEBI/LAD-NRO/GN/2025/276 dated November 21, 2025
  • SEBI/LAD-NRO/GN/2025/275 dated November 21, 2025

Compliance Requirements

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

  1. Appointment Process:

    • Advertise ED positions in all editions of at least one national daily
    • Ensure candidates have adequate experience and qualifications for respective verticals
    • Submit minimum two names to SEBI without preference order
    • Seek simultaneous SEBI approval for ED compensation
    • Initiate replacement process at least two months before existing ED’s last working day

  2. Board Composition:

    • Include EDs of Vertical 1 and Vertical 2 as Governing Board members

  3. Performance Management:

    • Implement annual performance evaluation for EDs by Public Interest Directors
    • Use evaluation mechanism similar to MD assessment

  4. Reporting Structure:

    • Establish direct reporting lines from EDs to MD
    • Arrange quarterly SCOT meetings with ED of Vertical 1

  5. Exemption Requests:

    • MIIs facing genuine practical difficulties may apply for time-bound exemptions
    • Applications evaluated case-by-case by SEBI

Important Dates

  • September 12, 2025: SEBI Board approval of amendments
  • November 21, 2025: Gazette notification of amendments
  • December 20, 2025: Provisions come into force (30 days from gazette publication)
  • Ongoing: Minimum two months advance notice required before ED term completion for replacement submissions

Impact Assessment

Market Impact:

  • Strengthens overall governance framework of critical market infrastructure institutions
  • Enhances investor protection through improved oversight of regulatory compliance and risk management functions
  • Increases operational resilience by separating critical operations oversight

Operational Impact:

  • Significant structural changes required at all MIIs
  • Additional senior management layer with board membership
  • Increased compensation costs for two ED positions
  • Enhanced accountability through dual vertical structure
  • More rigorous recruitment and approval processes

Governance Impact:

  • Clear segregation of responsibilities between critical operations and regulatory/compliance functions
  • Direct board representation for key operational areas
  • Strengthened oversight through quarterly SCOT interactions
  • Performance accountability framework for senior management
  • Reduced concentration of authority with distributed leadership model

Strategic Rationale: The reforms address the growing systemic importance of MIIs given phenomenal market growth in capitalization, trading volumes, technology adoption, and investor participation. Recognizes that lapses in these institutions could adversely impact securities markets and broader economy, necessitating enhanced governance structures to ensure they act primarily in public interest.

Impact Justification

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