The Securities and Exchange Board of India (SEBI) has proposed changes to how directors are appointed at stock exchanges, clearing corporations, and depositories. The plan aims to increase the pool of eligible experts by relaxing rules for widely held private firms. Additionally, the regulator is mandating strict qualification standards and hiring timelines for four critical management roles to improve operational resilience.
The Securities and Exchange Board of India (SEBI) has initiated a move to update the governance standards for Market Infrastructure Institutions (MIIs), which include the country’s stock exchanges, clearing corporations, and depositories. These institutions serve as the backbone of the capital market, and the regulator’s latest consultation paper seeks to modernize how their boards are structured and how key management personnel are hired.
Currently, MIIs face strict limitations when appointing directors. These rules prevent individuals from joining the board if their parent organization or associated companies are involved in brokerage, clearing, or depository participant services. While these safeguards were designed to prevent conflicts of interest, SEBI noted that they have become too rigid, often limiting the ability of exchanges to attract high-quality expertise from large, diverse financial groups.
Under the new proposal, SEBI aims to allow more flexibility by extending exemptions—which are currently available only to public-sector entities—to private companies that are "widely held." A firm will qualify under this definition if no single shareholder, excluding public-sector entities, holds a 10% or greater stake in the company. By relaxing these criteria, the regulator hopes to broaden the talent pool for Public Interest Directors, ensuring that those governing the exchanges have the necessary experience to handle complex market dynamics.
Beyond director appointments, the proposal introduces a standardized framework for four essential leadership positions: the Chief Technology Officer, the Chief Information Security Officer, the Compliance Officer, and the Chief Risk Officer. Currently, there is no uniform national requirement for the certifications and experience needed for these roles. SEBI is proposing that MIIs follow a structured process for these hires, which must include input from internal regulatory and technology committees.
To ensure continuity in operations, the regulator has also suggested strict timelines. MIIs would be required to fill any vacancy in these four roles within three months. Furthermore, to prevent operational gaps during leadership transitions, the proposal suggests that these institutions should appoint deputies for each of these functions. These measures are designed to ensure that the critical technical and compliance systems running the markets remain stable and secure at all times.
While these changes aim to strengthen governance, they also bring operational challenges. The relaxation of director eligibility criteria places a greater burden on MIIs to maintain robust internal controls to prevent potential conflicts of interest. Similarly, the requirement to fill vacancies within a strict three-month window may prove challenging for some institutions if the talent market for specialized technical and compliance roles remains tight. Investors and stakeholders can provide their feedback on these proposed changes until September 30, 2026, after which the regulator will finalize the new rules.