SEBI proposes involving external agency, regulator in hiring of KMPs of stock exchanges, other MIIs

The SEBI consultation paper was released on November 22.

The market regulator has proposed that market infrastructure institutions (MIIs) hire an independent external agency and involve SEBI when recruiting heads of technology and operations, and compliance verticals.

It has also proposed that SEBI be consulted for the reappointment or termination of these KMPs.

In a consultation paper issued on November 22, the Securities and Exchange Board of India (SEBI) has also suggested that a cooling off period be mandated for key management personnel (KMPs) and directors of MIIs before joining a competing MII.

Competing MIIs would mean between one stock exchange to another exchange, or one clearing corporation or another clearing corporation, or one depository to another depository, said the paper.

Public comments and suggestions need to be sent to SEBI by December 12.

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On recruitment process

Currently, the Nomination and Remuneration Committee (NRC) of MIIs such as stock exchanges and clearing houses handle the recruitment of heads of these verticals.

The consultation proposes to involve the external agency and the regulator to ensure a higher level of independence for these vertical heads.

There are broadly three verticals in the running of an MII--vertical 1 covers operations and technology; vertical two handles regulatory compliance, risk management and investor grievances; and vertical 3 is business development.

The regulations require the MIIs to give priority to the first two verticals. To ensure this, MIIs have a governing board that have an equal or majority of public interest directors (PIDs), whose appointment is cleared by SEBI. The regulator also clears the appointment of the MD of an MII from among the candidates suggested by the governing board.

The consultation paper said, "These KMPs (heads of verticals 1 and 2) must be able and willing, and be seen to be able and willing, to operate independent of short-term commercial considerations of Vertical 3 as necessary, to ensure that the MII delivers its primary mandate as a public utility infrastructure institution and as a first line regulator".

Besides suggesting that the MII involve the regulator in the appointment of these KMPs, the paper also suggests that the NRC of the MII submit recommendation of reappointment/termination of these KMPs to SEBI for approval.

If SEBI does not respond within the given time limit on the appointment/reappointment/termination of these KMPs, then the governing board of the MII can assume that the regulator has no comment to offer. The final decision on appointment/reappointment/termination of these KMPs will lie with the governing board of the MII.

On the cooling off period

As of now, there is a cooling off period of one year mandated for PIDs before being hired by a competing MII.

The consultation paper has said that MII have such a cooling off period for KMPs (including the MD). This period could be decided by the governing board of the MII.

The paper also suggests that the cooling off period for the PIDs, which is now currently mandated as one year, be allowed to be decided by the governing board of the particular MII.