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Sebi revises norms for oversight committees at exchanges, other MIIs


New Delhi: Capital market regulator Sebi has rationalised constitution of regulatory committees at market infrastructure institutions such as stock exchanges and depositories to ensure an effective oversight of functioning of such entities by giving more powers to public interest directors.

Sebi also said that a stock exchange after grant of recognition can commence trading operations with a minimum of 25 trading members, in place of the earlier requirement of minimum 50 members. Similarly, a newly recognised clearing corporation can now commence clearing and settlement operations with a minimum of 10 clearing members, in place of the earlier requirement of minimum 25 clearing members.

As the scope of work of some committees at market infrastructure institutions (MIIs) were inter-related and overlapping, Sebi’s board had earlier approved a proposal to rationalise them into seven specific panels.

According to the new norms, every recognised stock exchange, clearing corporation or depositories would need to have three functional committees — member selection committee; investor grievance redressal committee; and nomination and remuneration committee — and four oversight committees — standing committee on technology; advisory committee; regulatory oversight committee; and risk management committee.

In a circular, Sebi has also detailed functions of these seven committees, along with the detailed composition of each committee. On each committee, except the Investor Grievance Redressal Committee (IGRC), the number of Public Interest Directors (PIDs) cannot be less than the total of number of shareholder directors, key management personnel (KMPs), independent external persons put together.

Besides, a PID would need to chair each such committee who will also have the casting votes in their meetings. Also, voting on a resolution will be valid only when the number of PIDs that have cast their vote is equal to or more than the total number of other voting members.

Whenever required, a committee can invite the managing director or other relevant KMPs and employees of the institution, but such an invitee will not have any voting rights.

Sebi further said a PID on the board of an MII can not act simultaneously as a member on more than five committees of that MII, but this limitation would apply only to statutory committees. In case of non-availability of adequate number of PIDs in an MII, the institution would need to take steps to induct more PIDs to meet the requirement of composition of committees within an MII.

Besides, the PIDs would be required to meet separately every six months and all the PIDs would need to attend these meetings. The objective of such meetings will include reviewing the status of compliance with Sebi directions, reviewing the functioning of regulatory departments including the adequacy of resources dedicated to regulatory functions.

Further, PIDs will identify important issues which may involve conflict of interest for the MII or may have significant impact on the market and report the same to the regulator from time to time. Regarding the independent external persons on these committees, Sebi said these need to be persons of integrity, having a sound reputation and not having any conflict of interest.

They shall be specialists in the field of work assigned to the committee, but cannot be associated in any manner with the relevant MII and its members. On Member Selection Committee of a stock exchange, Sebi said it can have maximum two persons from key management personnel including its managing director.

The Nomination and Remuneration Committee can have only PIDs, but independent external persons can be included for the limited purpose of recommendations relating to selection of managing director.