The capital markets regulator has proposed new measures, including the appointment of board members for specific roles, to strengthen governance of stock exchanges, clearing corporations and depositories. 

The regulator seeks to reinforce the public-interest role of the market infrastructure institutions (MIIs) over their commercial objectives, according to a consultation paper released by the Securities and Exchange Board of India (Sebi) on Tuesday.

“MIIs have seen a rapid increase in investor base and volumes, as well as a growing network of intermediaries associated with them… a significant growth in revenue and profitability, and they enjoy high profit margins,” the regulator noted in its consultation paper.

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The proposals focus on three key areas:

1. Sebi recommends the mandatory appointment of two executive directors (EDs) on the boards of MIIs to oversee critical functions such as trading, clearing, settlement, compliance, risk management and investor grievance redressal. These EDs would be designated as key management personnel (KMPs) and hold comparable stature to the managing director (MD). A third ED may be appointed at the institution’s discretion for business development.
2. The paper proposes codifying the roles and responsibilities of MDs, EDs and other key officers such as the chief technology officer (CTO) and chief information security officer (CISO). Currently, these responsibilities are either distributed across departments or not formally defined in the regulations.
3. To reduce conflicts and improve accountability, Sebi has proposed restrictions on board roles. MDs of MIIs would only be allowed to serve as non-executive directors in charitable entities or unlisted government companies not engaged in commercial activities. EDs would be allowed to sit only on the boards of MII subsidiaries. This approach mirrors similar restrictions in the banking sector.

“With the surge in retail investors, the underlying concern is that MIIs must not operate without fixed accountability of KMPs. This consultation paper is a step in that direction,” said Diviay Chadha, Partner at Singhania & Co. “MIIs—regardless of their status under the Companies Act—will be required to amend their charter documents and board composition to comply with the final regulations.”

While the proposals aim to reduce potential conflicts of interest, some experts flagged possible unintended consequences.

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“This prohibition on EDs of MIIs from serving on boards of any company, except MII subsidiaries, is necessary in principle to ensure accountability,” said Akshaya Bhansali, Partner at Mindspright Legal. “However, from a broader market perspective, it may affect the availability of independent directors for listed companies.”

These proposals come at a critical time as Sebi continues to review the National Stock Exchange’s (NSE) long-delayed IPO application. NSE’s public listing—first proposed in 2016—has faced several regulatory hurdles.

In a letter to NSE dated 28 February, Sebi responded to the exchange’s IPO application by stressing that “the culture of giving primacy to public interest over commercial interest must run deep at the operating level as well.”

Bhansali, however, said, “These governance changes should not directly influence Sebi’s review of the NSE IPO. They are not targeted solely at NSE. However, unless otherwise clarified, these norms could become de facto expectations or preconditions for approval.”

Public comments on the consultation paper are open until 15 July.