Sebi plans to ease board rules for stock exchanges, widen pool for top posts

The Securities and Exchange Board of India (Sebi) has proposed easing restrictions on who can serve on the boards of stock exchanges, clearing corporations and depositories, seeking to widen the pool of experienced professionals available for key governance positions. The market regulator said existing restrictions have created practical difficulties for market infrastructure institutions (MIIs), particularly while identifying suitable candidates for Public Interest Director positions.

Under the existing framework, individuals associated with stock brokers and other market intermediaries face restrictions on joining the governing boards of MIIs. Sebi has now proposed allowing directors of widely held companies to serve on such boards even if another company belonging to the same corporate group operates as a stock broker, clearing member or depository participant.

10% ownership threshold proposed

Under the proposed framework, a company would be considered widely held if no private shareholder, either individually or together with related parties, owns or controls 10 per cent or more of the company. Public-sector shareholders would not be counted while applying the 10 per cent threshold.

The change is aimed at addressing situations involving large corporate groups where different businesses operate independently but an individual's eligibility for an MII board may still be affected because another group company has links to the securities market. Sebi believes relaxing this restriction could make a larger number of experienced professionals eligible without compromising safeguards against conflicts of interest.

Stricter norms for critical posts

Alongside the board reforms, Sebi has proposed standardised eligibility and experience requirements for four critical senior management functions at MIIs — technology, cybersecurity, compliance and risk management. These positions have assumed greater importance as exchanges and other market institutions become increasingly dependent on technology and face growing operational and cyber risks.

The regulator has proposed that vacancies in these critical positions be filled within three months. It has also sought stakeholders’ views on whether MIIs should be permitted to appoint deputies for these functions, which could ensure continuity when the principal official resigns or is temporarily unavailable.

Comments invited till September 30

The proposals form part of Sebi’s broader effort to strengthen the governance and operational resilience of institutions at the heart of India’s securities market. While the regulator wants to make board eligibility rules more flexible, it is simultaneously seeking clearer accountability and qualification standards for officials overseeing sensitive functions.

Sebi has invited public and stakeholder comments on the proposed changes until September 30. The final framework will be decided after examining the feedback received on the consultation paper.