Explained: Why SEBI wants to better regulate market infrastructure institutions

The Securities and Exchange Board of India (SEBI) wants to regulate market infrastructure institutions (MIIs) more stringently. 

To this effect, the capital markets regulator has sought comments on a report submitted by a working committee that looked into the issue of strengthening of MIIs. 

This was done after the committee deliberated with various stakeholders, representatives of MIIs and other relevant individuals.

What are MIIs?

MIIs are institutions providing infrastructure of trading, settlement and record keeping and include stock exchanges, clearing corporations and depositories.

What led up to the market regulator forming a committee?

In April, the market regulator formed a committee under G. Mahalingam, a former whole-time member of SEBI, to strengthen governance norms at the MIIs. This comes after India’s largest stock exchange--the NSE--grappled with corporate governance issues pertaining to the co-location scam.

What has the committee’s report actually said?

“In order to enhance transparency, the MIIs should disclose the agenda and minutes of meetings of their board, keeping in mind their role as a ‘first-level regulator’. To begin with, agendas related to regulatory, compliance & risk management areas may be disclosed on the website of the MII," said the 108-page report.

How does SEBI want to categorise the MIIs?

According to SEBI, the functions of MIIs should be categorized into three verticals—critical operations; regulatory, compliance and risk management; and other functions, including business development. The key managerial persons (KMPs) heading the functions under the first two verticals should be on a par in hierarchy with the KMPs heading the third vertical.

With respect to resource allocation and utilization, SEBI said that the function under critical operations and regulatory verticals should be given higher priority by the MIIs over functions of the compliance and risk management vertical.

The human, financial, and technological resources that MIIs use for each of the fundamental tasks associated with the various verticals should be quantified and disclosed in the MIIs’ annual report, it said.