Markets regulator Sebi on Friday strengthened the governance framework at Market Infrastructure Institutions (MIIs), including stock exchanges, by mandating the appointment of two executive directors (EDs) to bolster operational oversight.
Under the new structure, the ED of Vertical 1 will head "critical operations", while the ED of Vertical 2 will oversee regulatory functions, compliance, risk management and investor grievances. Both EDs will also be inducted into the MII's Governing Board.
To ensure transparency in hiring, Sebi has directed that applications for ED positions be invited through open advertisements. Applicants are required to have relevant experience and qualifications for their respective verticals, according to its circular.
Further, MIIs will be required to submit at least two names without preference for each ED position to Sebi for approval, along with the proposed compensation package.
Sebi has clarified that any changes to the approved compensation will require its prior consent.
Also, the regulator has specified timelines for continuity in leadership. MIIs are required to forward names for ED positions at least two months before the term of an incumbent ED ends.
Public Interest Directors (PIDs) will oversee performance assessments of EDs based on an annual evaluation mechanism aligned with the process used for Managing Directors (MDs).
Recognising that MIIs vary in size, financial strength and growth stages, Sebi has allowed flexibility in implementation. MIIs facing genuine operational constraints may seek time-bound exemptions, which will be evaluated on a case-by-case basis.
Despite this flexibility, Sebi has emphasised that both EDs will report directly to the MD for all purposes, reinforcing accountability within the institution.
In line with Sebi's objective of strengthening regulatory and operational excellence, the regulator has revised oversight mechanisms. The Standing Committee on Technology (SCOT) will hold quarterly meetings with the ED of Vertical 1 without the presence of the MD or other executives to independently assess their performance.
Inputs from both the SCOT and the MD will then be considered by the Nomination and Remuneration Committee (NRC) while finalising the appraisal.
Similarly, the Regulatory Oversight Committee (ROC) and Risk Management Committee (RMC) will meet quarterly with the ED of Vertical 2, independently reviewing their performance. The NRC will factor in assessments from the ROC, RMC and the MD in determining the ED's performance evaluation.
To enhance accountability, both EDs will present quarterly reports to the Governing Board on matters related to their verticals. They may also escalate issues directly to Sebi if considered important or urgent.
Moreover, the reporting lines of key management personnel (KMPs) have been realigned as all Heads of Department under Vertical 1, including the CTO and CISO, will now report to the ED of Vertical 1, while the Compliance Officer and Chief Risk Officer (CRiO) will report to the ED of Vertical 2.
Although the reporting structure has shifted from the MD to the EDs, statutory committees will continue meeting these KMPs independently at least once every quarter.
Sebi has further clarified the role of the CRiO, stating that the official will handle all technology audits, including the System Audit and Cybersecurity Audit. The CRiO will also attend SCOT meetings as an invitee, alongside the CTO and CISO, strengthening the technology and risk oversight framework.
To ensure a phased and practical rollout of these governance changes, Sebi has allowed MIIs to adopt a glide path. The first ED must be appointed within six months of the amendments to the SECC Regulations, 2018, and the D&P Regulations, 2018 coming into effect. The second ED must be appointed within nine months of the implementation of these amendments.
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