SEBI Pushes for Stricter Governance Rules in Key Market Institutions

India's financial watchdog, the Securities and Exchange Board of India (SEBI), is calling for a major overhaul in how some of the country's most important market institutions are run. On June 24, SEBI released a detailed consultation paper outlining bold proposals to strengthen governance at stock exchanges, clearing corporations, and depositories. The aim? To boost transparency, protect public interest, and prevent conflicts of interest in these high-stakes organizations.

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Why Now? Market Institutions Are More Powerful Than Ever

Market infrastructure institutions (MIIs) are no longer just behind-the-scenes operators. With more people trading, higher volumes, and bigger profits, their influence has grown massively. SEBI views these entities as "quasi-public utilities," and any governance lapse could have a ripple effect across the entire financial system.

Here's how SEBI put it: "The surge in investor participation, combined with growing complexity, means MIIs now serve as first-line regulators." In short, these institutions are too central to risk leaving any cracks in their leadership or oversight.

The Big Idea: Two Independent Executive Directors for Every MII

At the heart of SEBI's plan is a new rule: every MII must have two Executive Directors (EDs), independent of the Managing Director (MD), with equal authority. Here's how their roles break down:

• ED - Trading: In charge of core trading operations, clearing, and settlements.
• ED - Risk & Compliance: Handles regulatory issues, risk management, and investor complaints.

These EDs won't just be figureheads; they'll be key decision-makers with board seats and regular meetings with SEBI's oversight committees without the MD present. The goal? Honest, independent input with zero pressure from the top brass.

Defining the Tech and Security Chiefs

SEBI's also calling for clearer responsibilities for other top roles like:

• Chief Technology Officer (CTO)
• Chief Information Security Officer (CISO)
• Chief Compliance Officer (CCO)
• Chief Risk Officer (CRO)

These officers will be responsible for everything from data security to ensuring compliance with regulations. Think of it as building a transparent chain of command for tech and risk, with no ambiguity and no hiding behind the organisational chart.

A Ban on Outside Board Seats

To prevent any conflicts of interest, SEBI wants to limit outside directorships severely:

MDs can only sit on non-profit or government boards that don't run commercial operations.
EDs? No external boards are allowed unless they are a subsidiary of their institution.
Supporters say this makes sense. As NDTV Profit noted, most MDs already act as full-time regulators. Wearing too many hats only creates the potential for blurred lines.

What's Next? Public Feedback, Then Action

SEBI is asking for public comments by July 15, 2025. After that, they'll finalize the rules and fold them into the SECC and Depositories & Participants regulations.

But this move isn't happening in isolation. It's part of a larger reform push. Just this month, SEBI also:

• Tightened audit committee rules for MIIs
• Released a new "AI rulebook" for algorithmic trading
• Revamped mutual fund, REIT, and InvIT guidelines

The regulator is trying to keep pace with a rapidly evolving market and ensure that investor trust doesn't get left behind.

Industry Reactions: Support With a Side of Caution

Most legal and market experts back SEBI's intentions. Akshaya Bhansali from Mindspright Legal says cutting external board roles makes sense but warns it could shrink the pool of qualified independent directors for listed companies.

These changes may also affect SEBI's ongoing review of the NSE's IPO. In a letter dated February, SEBI reportedly reminded NSE to prioritise public interest over profits if it wants to go public.

While regulators insist this overhaul isn't NSE-specific, the final rules may very well set a bar the NSE and every other MII will have to clear before listing.

SEBI is sending a clear message: as markets grow more complex, governance can't lag. With new oversight roles, clear accountability for tech and risk leaders, and tighter rules governing outside affiliations, the regulator aims for MIIs to serve the public, not just pursue profits.

We'll know more after July 15, but one thing is sure: these reforms could reshape how India's capital markets are run for years to come.