SEBI board may discuss norms for independent directors, stock exchange ownership

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The board of the Securities and Exchange Board of India (SEBI) is likely to take up norms for independent directors and the ownership and governance of stock exchanges and depositories when it meets on June 29.

Clearance of the regulator’s annual accounts, which will be tabled in Parliament, is also likely to be on the agenda.

SEBI had put out a consultation paper reviewing regulatory provisions related to independent directors in March this year, seeking feedback on proposals including greater transparency in the selection of independent directors, the process of their appointment and removal, and their remuneration structure.

“SEBI may come out with appropriate norms for independent directors, which were also reviewed by the primary market advisory committee recently, a person familiar with the developments told Moneycontrol,” a person familiar with the developments told Moneycontrol.

The board may finalise ownership and governance norms to help new entrants to set up stock exchanges and depositories, as proposed in amendments to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.

A consultation paper on the ownership, governance and regulation of stock exchanges and depositories, also known as market infrastructure institutions (MIIs), was issued on January 6.

A discussion on MII ownership norms had been proposed at the previous SEBI board meeting but was postponed and may come up for discussion on Tuesday.

SEBI has proposed to raise the shareholding cap for stock exchanges, clearing corporations and depositories. Currently, ownership of MIIs is capped at 5 percent for domestic or foreign individuals and for domestic or foreign institutions in general. Ownership for a select category of domestic or foreign institutions is limited to 15 percent.

The current shareholding limits were prescribed to achieve a diversified ownership structure of MIIs, in line with the recommendations of the Bimal Jalan committee (2010) on ‘Review of Ownership and Governance of Market Infrastructure Institutions’ and the R. Gandhi Committee (2018) on ‘Review of Regulations and Relevant Circulars Pertaining to MIIs,’ which emphasised the public utility role of MIIs in furthering the larger economic and regulatory interests of the market.

The discussion paper proposed that promoters of MIIs may hold up to a 100 percent stake, directly or indirectly, and either individually or with others. The shareholding of such promoters, directly or indirectly, should be scaled down to 51 percent or 26 percent within 10 years of starting the business.

The regulator has proposed that foreign nationals and entities regulated by the Financial Action Task Force (FATF) can set up MIIs, either directly or with others, and hold up to a 49 percent stake. Smaller exchanges in need of money and technology are awaiting this step.

SEBI may also allow payment banks to take application money for initial public offers. It may issue a consultation paper on allowing such entities to participate in the IPO process.