Market Infrastructure Institutions

SEBI introduces financial disincentives for surveillance lapses at Market Infrastructure Institutions (“MIIs”)

SEBI, vide circular dated June 6, 2024, has issued the Framework of Financial Disincentives for Surveillance Related Lapses (“SRL”) at MIIs, (“Framework”). The key provisions of the Framework are as follows:

1. the amount of financial disincentives will be determined on the basis of total annual revenue of the MII, as an indicator of the size and impact of the MII on the market ecosystem, during the previous financial year as per the latest audited consolidated annual financial statement and the number of instances of SRL during the financial year;
2. the financial disincentive(s), if imposed, will be credited by the MII within 15 (fifteen) working days, to the Investor Protection and Education Fund;
3. MIIs must report surveillance activities, including abnormal or suspicious activities, and promptly implement decisions from surveillance meetings. Non-compliance or delays can result in financial penalties;
4. the Framework will not be applicable to matters/instances wherein it has:
   1. made market wide impact; or
   2. caused losses to a large number of investors; or
   3. affected the integrity of the market; and
   4. any such matter will be subject to appropriate proceedings under the Securities Contracts (Regulation) Act, 1956 or SEBI Act, 1992 or Depositories Act, 1996;
5. the Framework will be applicable for any SRL occurring on or after July 1, 2024.

Statutory committees at MIIs

SEBI, vide circular dated June 25, 2024, has revised the functions, composition and terms of reference of the statutory committees of MIIs. The committees are divided into different categories, such as functional, oversight, and investment. The key revisions are as follows:

1. the circular specifies the composition of each statutory committees and these inter alia non-independent directors (other than executive directors), Independent External Professionals (“IEPs”) along with Public Interest Directors (“PIDs”) and for certain committees key managerial personnels as well;
2. the total number of PIDs must not be less than the total number of other members of the Committee (including IEPs) put together. In case of Standing Committee on Technology, the total number of PIDs must not be less than the total number of other members of the Committee, excluding IEPs;
3. the chairperson of each statutory committee must be a PID, and who must have a casting vote;
4. IEPs must be individuals of integrity with no conflict of interest and should not be associated with the MII or its members in any manner;
5. a newly recognised stock exchange, clearing corporation and depository must submit a confirmation to SEBI within 3 (three) months from the date of their recognition regarding the formation and composition of statutory committees; and
6. members of statutory committees must adhere to the applicable code of conduct as per the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and the SEBI (Depositories and mParticipants) Regulations, 2018.
   The provisions of this circular has come into force from July 25, 2024.

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