Sebi issues financial disincentive framework for MIIs for surveillance-related lapses

The first instance can lead to a disincentive of Rs 25 lakh, Rs 5 lakh and Rs 1 lakh if the annual turnover is over Rs 1,000 crore, between Rs 1,000 crore and Rs 300 crore, and less than Rs 300 crore respectively.

Market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations and depositories may now have to pay a fine if there are any surveillance-related lapses.

The lapses include not just failure to implement the surveillance measures in time but also any delay in implementing them or only partially implementing them. Lapses that will be excluded include minor delays and errors in submitting information sought by the regulator, and extension of submission deadline sought for factors that are outside of the MIIs' control.

On June 6, the Securities and Exchange Board of India (Sebi) issued a framework for financial disincentive in case of surveillance related lapses by MIIs. The framework will come into effect from July 1, 2024.

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According to the circular, the disincentive will be decided based on the annual revenue and the number of lapses in a financial year.

The first instance can lead to a disincentive of Rs 25 lakh, Rs 5 lakh and Rs 1 lakh if the annual turnover is over Rs 1,000 crore, between Rs 1,000 crore and Rs 300 crore, and less than Rs 300 crore respectively.

The second instance can invite a disincentive of Rs 50 lakhs, Rs 10 lakh and Rs 2 lakh, depending on the MII's annual turnover.

The third instance can invite a disincentive of Rs 1 crore, Rs 20 lakh and Rs 4 lakh, depending on the MII's turnover.

What are the lapses?

Surveillance related lapses fall under three categories.
1. Any lapse observed in the implementation of decisions taken during the surveillance meetings. This will include even partial and delayed implementation of any decision, or absence of, partial or delayed communication with the regulator on its implementation.

2.Any lapse observed in discharge of surveillance activities as per agreed
scope and timelines;

3. Any inadequate reporting or non-reporting of surveillance related activity as per agreed timelines.