SEBI’s New Directives for Market Infrastructure Institutions (MIIs)

The capital market regulator,  the Securities and Exchange Board of India (SEBI) has issued updated directives aimed at enhancing governance and compliance among Market Infrastructure Institutions (MIIs). These changes focus on internal procedures, disciplinary actions, technological integration, and data security measures to ensure the smooth functioning of MIIs.

These new directives are set to take effect from April 1, 2025. SEBI’s overarching goal is to strengthen the governance framework within MIIs, ensuring compliance and better market surveillance.

Standard Operating Procedures (SOPs) for Disciplinary Actions

SEBI has mandated that all MIIs must develop internal Standard Operating Procedures (SOPs) to address potential disciplinary actions against Key Managerial Personnel (KMPs) for non-compliance with regulatory requirements and internal guidelines. These SOPs must be approved by the Nomination and Remuneration Committee (NRC) as well as the governing board of the MII.

Disciplinary Actions Against KMPs

The SOPs should clearly define potential disciplinary actions, including advisory warnings, impact on annual increments or promotions, suspension, or even termination. In cases of severe non-compliance, malus-clawback provisions may be invoked to reduce or cancel the compensation of the concerned executive. Repeated or serious non-compliance could lead to stringent penalties, including termination or financial fines.

SEBI has stressed that MIIs must adhere to corporate governance norms and disclosure requirements similar to those applied to listed companies. This includes publishing all material information regarding their members on their websites to ensure transparency.

Technological Integration for Regulatory Oversight

To improve regulatory oversight, MIIs are encouraged to integrate advanced technologies such as Regulatory Technology (RegTech) and Supervisory Technology (SupTech). These technologies are expected to streamline the submission process for members, reducing reliance on physical documentation and allowing for online submissions. Alerts and reports generated from these submissions will help MIIs fulfil their regulatory and supervisory duties more efficiently.

Data Security and Confidentiality Protocols

In line with existing regulations, MIIs are required to implement internal policies for sharing confidential data, in compliance with the Stock Exchanges, Clearing Corporations, and Depositories & Participants Regulations. These policies should cover both online and offline data-sharing methods and include monitoring systems for compliance. MIIs must report any data breaches to SEBI within 15 days, detailing the remedial actions taken.

Reporting Structures for Key Managerial Personnel

SEBI has introduced a two-stage process for the appointment of critical positions such as Compliance Officer (CO) and Chief Risk Officer (CRiO) within MIIs. Initially, MIIs will submit brief candidate profiles for shortlisting, followed by detailed documents for final approval by SEBI. Additionally, KMPs must have an independent reporting structure, with the authority to report directly to committees without interference from the Managing Director or other executives.

Regulatory Push for Self-Regulation Among MIIs

SEBI’s move aligns with its earlier regulatory circulars aimed at enhancing surveillance and self-regulation among market intermediaries. In June 2024, SEBI introduced a framework imposing financial disincentives for MIIs, such as stock exchanges, clearing corporations, and depositories, in case of failure to detect abnormal or suspicious trading activities. A month later, SEBI directed stockbrokers to establish mechanisms for detecting and preventing fraud or market abuse.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.