The Sebi Committee on ‘Strengthening governance of market infrastructure institutions (MIIs)’ has proposed stricter regulations for enhancing accountability and transparency of MIIs like stock exchanges, depositories and clearing houses.
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The panel, headed by former Sebi Whole-time Member G Mahalingam, has mooted measures for strengthening the role played by the governing board and committees of MIIs, reviewing the requirements related to appointment and role & responsibility of directors on the board and key managerial persons (KMPs) and developing effective metrics for monitoring various aspects of their functioning.
In its report submitted to Sebi Chairperson Madhabi Puri Buch, the committee also proposed reviewing the policy on safekeeping and sharing of information held by MIIs, revisiting the code of conduct and code of ethics for directors of the governing board and KMPs and activities and governance of investee companies of MIIs.
It said the functions of MIIs should be categorized into three verticals — critical operations, regulatory, compliance and risk management and other functions including business development. The KMPs heading the functions under the first two verticals should be at par in hierarchy with the KMPs heading the third vertical, the report said.
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In terms of resource allocation and utilization, the functions under the first two verticals separately should be given higher priority by MIIs over functions under the third vertical. The resources including the human as well as financial and technology resources deployed by MIIs for each of the core functions under different verticals should be quantified and disclosed in the annual report of the MIIs, it said.
To ensure greater independence of the Board of the MII, at least two-third members of the Board of the MII should comprise public interest directors (PIDs). The roles and responsibilities of all directors should be clearly outlined, especially their responsibilities towards regulatory, compliance and risk management functions, the committee said.
The panel said periodic review through an internal as well as external mechanism, should be conducted to evaluate the effectiveness of the MIIs in discharging their core and critical functions. Accordingly, the MIIs, as an entity, should internally evaluate its own performance on an annual basis and engage an external agency for evaluating its performance once in every three years, it said.
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It has recommended that the MII may frame its own evaluation metrics based on the indicative parameters as specified by SEBI. The first external evaluation should be conducted within a period of twelve months from the date of implementation of the recommendations.
