The Securities and Exchange Commission of India (SEBI) has introduced stricter rules to improve governance at key market infrastructure institutions (MIIs), such as stock exchanges, liquidation companies and deposits. In a move aimed at preventing conflicts of interest and ensuring market integrity, SEBI has required certain directors to observe the cooling period before joining competing institutions.
“A non-independent director of the trustee’s board of trustees may only be appointed to an accredited stock exchange or an accredited liquidation corporation or another depository institution after a cooling period, as designated by the trustees board of trustees.”
Market regulators have amended the 2018, 2018 Securities Agreement (Regulation) (Stock Exchange) regulations, and the 2018 Deposit and Participant Regulations, to ensure these changes are in effect.
Under the new framework, a non-independent director who has served on a board of directors of a recognized stock exchange or clearing corporation may only be appointed to the board of directors of another competing institution, such as another exchange, a liquidation housing or deposit, after meeting two important conditions.
These include the completion of a cooling period, which is determined by the management board of the relevant institution and includes obtaining prior approval from the SEBI.
SEBI also specifies that after completing its term in a market infrastructure institution, it may be appointed to another similar institution for a three-year additional term, but only with approval.
Cooling-off requirements apply especially when an individual is appointed as a public interest director of a competing agency.
These new measures aim to ensure stronger surveillance and ethical standards at institutions that play a key role in the smooth functioning of Indian financial markets.
SEBI said the change is part of an ongoing effort to strengthen MII’s governance framework and prevent potential conflicts that could arise from the movement of directors between competing entities.
The decision follows a board-level review conducted by SEBI in March, and focuses on the process of appointing key officials from stock exchanges and related market institutions.
The introduction of a formal cooling period was one of the key recommendations from that review.
