The International Financial Services Centres Authority (IFSCA) has introduced the Market Infrastructure Institutions (Amendment) Regulations, 2024, revising its 2021 regulations. Key updates include a redefined “clearing corporation” to encompass entities involved in the settlement of securities and specified financial products, along with a broadened definition of “key management personnel” (KMP), which now includes department heads and other essential decision-makers. Terminology changes replace “trading member” with “broker dealer” and introduce “non-independent director” to enhance governance clarity. The amended regulations mandate a Code of Conduct for market infrastructure institutions, covering the board, KMPs, and committee members, with strict compliance oversight and the possibility of removal for misconduct. A new Nomination and Remuneration Committee will oversee KMP compensation, integrating malus and clawback provisions. Functional committees for critical operations and regulatory compliance are now required, with trading hours extended up to 23 hours and 30 minutes per day. Additionally, the regulation outlines net worth definitions for clearing corporations, stock exchanges, and depositories, with specified liquidity requirements.
INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY
NOTIFICATION
Gandhinagar, the 29th October, 2024
International Financial Services Centres Authority (Market Infrastructure Institutions) (Amendment) Regulations, 2024
No. IFSCA/GN/2024/011 —In exercise of the powers conferred by sub-section (1) of Section 28 read with sub-section (1) of Section 12 and sub-section (1) of Section 13 of the International Financial Services Centres Authority Act, 2019, Sections 4, 8A and 31 read with Section 29B of the Securities Contracts (Regulation) Act, 1956; and Section 25 read with Section 23G of the Depositories Act, 1996, the International Financial Services Centres Authority hereby makes the following regulations, further to amend the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 (hereinafter referred to as the principal regulations), namely:-
1. (1) These regulations may be called the International Financial Services Centres Authority (Market Infrastructure Institutions) (Amendment) Regulations, 2024.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In regulation 2 of the principal regulations, in sub-regulation (1), for clause (c), the following clause shall be substituted, namely: –
“(c) “clearing corporation” means an entity that is established to undertake the activity of clearing and settlement of trades in securities or other permitted financial products and includes a clearing house;
3. In regulation 2 of the principal regulations, in sub-regulation (1), for clause (j), the following clause shall be substituted, namely: –
“(j) “key management personnel” in relation to a recognised market infrastructure institution shall mean and include:
i. a person appointed as its managing director or executive director;
ii. a person serving as the head of a department or vertical and directly reporting to the managing director or to the directors of its governing board;
iii. a person serving as the head of a core function as specified in regulation 27 of these regulations;
iv. a person who stands higher in hierarchy to the head of any department(s) handling its core function(s);
v. a person to whom a key management personnel reports;
vi. a person covered under the definition of “key managerial personnel” under the Companies Act, 2013; or
vii. any other person who is a key decision-making authority as identified by its governing board.
4. In regulation 2 of the principal regulations, in sub-regulation (1), in clause (k), for the words “trading member”, the words “broker dealer” shall be substituted.
5. In regulation (2) of the principal regulations, in sub-regulation (1), after clause (l), following clause shall be inserted, namely:-
“(la)“non-independent director” means a director elected or nominated by the shareholders who is neither a broker dealer, nor clearing member, nor depository participant, or their associate or agent;”
6. In regulation 2 of the principal regulations, in sub-regulation (1), clauses (u) and (v) shall be deleted.
7. In regulation 8 of the principal Regulations, in sub-regulation (2), in clause (d), for the word “securities”, the words “securities or other permitted financial products” shall be substituted.
8. In regulation 8 of the principal regulations, in sub-regulation (2), in clauses (e) and (f), for the words “trading members”, the words “broker dealers” shall be substituted.
9. After regulation 10 of the principal regulations, the following regulation shall be inserted, namely:-
“10A. Code of Conduct for recognised market infrastructure institution- A recognised market infrastructure institution shall abide by the Code of Conduct as specified under Part-A of Schedule-I of these regulations.”
10. In regulation 15 of the principal regulations, the following explanations shall be inserted, namely:-
Explanation I- For the purposes of this regulation, ‘net worth of a recognised stock exchange or recognised depository’ means the aggregate value of paid up equity share capital plus free reserves (excluding statutory funds, benefit funds and reserves created out of revaluation) reduced by the investments in businesses, whether related or unrelated, aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off.
Explanation II – For the purposes of this regulation, ‘net worth of a clearing corporation’ means the aggregate value of its liquid assets calculated in the manner as may be specified by the Authority from time to time.
Explanation III– Cash and bank balance, fixed deposits, Government Securities and other instruments as may be specified by the Authority from time to time shall be considered as ‘liquid assets’ for the purpose of calculation of net worth of a clearing corporation.
11. In regulation 16 of the principal regulations, in sub-regulation (1), for clause (b) and its proviso, the following clause shall be substituted, namely:-
“(b) a joint venture of market infrastructure institutions recognised in India, an IFSC or a Foreign Jurisdiction with a minimum of fifty-one per cent. of the paid-up equity share capital of the recognised stock exchange held by such joint venture.”
12. In regulation 17 of the principal regulations, in sub-regulation (1), for clause (b) and its proviso, the following clause shall be substituted, namely:-
“(b) a joint venture of market infrastructure institutions recognised in India, an IFSC or a Foreign Jurisdiction with a minimum of fifty-one per cent. of the paid-up equity share capital of the recognised clearing corporation held by such joint venture.”
13. In regulation 18 of the principal regulations, in sub-regulation (1), for clause (b) and its proviso, the following clause shall be substituted, namely:-
“(b) a joint venture of market infrastructure institutions recognised in India, an IFSC or a Foreign Jurisdiction with a minimum of fifty-one per cent. of the paid-up equity share capital of the recognised depository held by such joint venture.”
14. In regulation 23 of the principal regulations, in sub-regulation (2), the following explanation shall be inserted, namely:-
“Explanation: For the purpose of sub-clauses (v) and (vi) of this sub-regulation, any order or direction against a recognised market infrastructure institution or its shareholders, as the case may be, shall not adversely affect the operation of such recognised market infrastructure institution unless so expressly directed in the order or direction.”
15. In regulation 24 of the principal regulations, in sub-regulation (2), for the words “shareholder director”, the words “non-independent director” shall be substituted.
16. In regulation 24 of the principal regulations, in sub-regulation (2), for clause (e), the following clause shall be substituted, namely:-
“The nominees of broker dealers or clearing members in an IFSC or their associates or agents, except nominee (s) of a scheduled commercial bank or a public financial institution, shall not be on the governing board of a recognised stock exchange or a recognised clearing corporation.”
17. In regulation 24 of the principal regulations, in sub-regulation (2), for clause (f), the following clause shall be substituted, namely:-
“The nominees of depository participants in an IFSC or their associates or agents, except nominee (s) of a scheduled commercial bank or a public financial institution, shall not be on the governing board of a recognised depository.”
18. In regulation 24 of the principal regulations, in sub-regulation (2), in clause (h), the following proviso shall be inserted, namely:-
“Provided that a public interest director may be appointed for a maximum of three terms across recognised market infrastructure institutions, subject to a maximum age limit of seventy five years.”
Provided further that, the existing public interest director(s) may continue in office till the expiry of their current term.
19. In regulation 24 of the principal regulations, after sub-regulation (2), the following sub-regulation shall be inserted, namely:-
“(2A) The Authority may appoint not more than three directors on the governing board of a recognised market infrastructure institution, who shall enjoy the same status and powers as the other directors of the governing board.”
20. In regulation 24 of the principal regulations, in sub-regulation (2), for clause (i), the following clause shall be substituted, namely:-
(i) The appointment of managing director shall be for a term not exceeding five years:
“Provided that post the completion of first term, the recognised market infrastructure institution shall conduct the appointment process for appointment of the Managing Director afresh:
Provided further that managing director may be appointed by a recognised market infrastructure institution for a maximum period of ten years, subject to maximum age limit of sixty five years”
Provided also that, the existing managing director may continue in office till the expiry of the current term.
21. Regulation 25 of the principal regulations, shall be substituted as follows, namely:-
“25. Code of Conduct for the governing board, directors, committee members and key management personnel.- (1) The governing board, directors, committee members and key management personnel of a recognised market infrastructure institution shall abide by the Code of Conduct specified under Part-B of Schedule-I of these regulations.
(2) The Authority may, for any failure by the directors, committee members or key management personnel to abide by these regulations or Code of Conduct or in case of any conflict of interest, either upon a reference from the recognised market infrastructure institution or suo motu, take appropriate action including removal or termination of the appointment of any director, committee member or key management personnel after providing them with a reasonable opportunity of being heard.”
22. After regulation 25 of the principal regulations, the following regulation shall be inserted, namely:-
“25A Compensation of key management personnel. – (1) A recognised market infrastructure institution shall constitute a Nomination and Remuneration Committee in the manner as may be specified by the Authority.
(2) The Nomination and Remuneration Committee shall determine the compensation of key management personnel in terms of a compensation policy approved by the governing board of the recognised market infrastructure institution.
(3) The compensation policy shall have malus and clawback arrangements.
(4) The compensation payable to the managing director of the recognised market infrastructure institution and any change therein shall be intimated to the Authority.”
23. For regulation 26 of the principal regulations, the following regulation shall be substituted, namely:-
“26. Committees. – (1) A recognised market infrastructure institution shall constitute functional committees, oversight committees and such other committees as may be specified by the Authority from time to time.
(2) The composition, quorum and functions of the committees referred to in sub-regulation (1) shall be specified by the Authority.”
24. For regulation 27 of the principal regulations, the following regulation shall be substituted, namely:-
“27. Segregation of functions.- (1) A recognised market infrastructure institution shall identify its core and critical functions, and segregate them into the following verticals:
a) Vertical 1: Critical Operations;
b) Vertical 2: Regulatory, Legal, Compliance, Risk Management and Investor Grievances;
c) Vertical 3: Other functions including business development.
(2) The functions of the verticals referred under sub-regulation (1) above, are provided at Schedule-II of these regulations.
(3) Every market infrastructure institution shall ring-fence the functions and personnel under vertical 2 as referred to in clause (b) of sub-regulation (1) from the other verticals.”
25. Title of the regulation 29 of the principal regulations shall be substituted with the following, namely:-
“29. Admission of securities or other permitted financial products”
26. In regulation 29 of the principal regulations, after the words “any new category of securities”, the words “or other permitted financial products” shall be inserted.
27. In regulation 31 of the principal regulations, in sub-regulation (6), following explanation shall be inserted, namely:-
Explanation: The detailed framework under sub-regulation (6), shall inter-alia specify the contribution to be made by the clearing members, recognised clearing corporation and recognised stock exchange towards the establishment of the fund and also provide the mechanism for replenishment of the fund in the event of a shortfall.
28. In regulation 32 of the principal regulations, for sub-regulation (1), the following sub-regulation shall be substituted, namely:-
“(1) The trading hours for all product categories shall be as decided by the recognised stock exchange, based on cost-benefit analysis, but shall not exceed 23 hours and 30 minutes in a day, and settlement shall be done at least once a day.
Provided that a recognised clearing corporation shall ensure that during the trading hours, the Mark-to-Market losses on open futures contracts are collateralised at regular intervals based on risk assessment.”
29. In regulation 39 of the principal regulations, in sub-regulation (1), for the word “twenty”, the word “eight” shall be substituted.
30. In regulation 39 of the principal regulations, in sub-regulation (2), for the word “twenty”, the word “eight” shall be substituted.
31. In regulation 41 of the principal regulations, in sub-regulation (3), for the words “trading member”, the words “broker dealer” shall be substituted.
32. After regulation 43 of the principal regulations, the following regulation shall be inserted, namely:-
“43A. Winding Down of Operations of a Recognised Clearing Corporation.-
(1) A recognised clearing corporation shall develop a framework for orderly winding down of its critical operations and services covering both voluntary and involuntary scenarios.
(2) A recognised clearing corporation shall ensure that the framework provides for:-
(a) the timely and orderly settlement or cessation or transfer of position(s);
(b) the transfer of the collateral(s) or deposit(s) or margin(s) or any other asset(s) of the members to another recognized clearing corporation that would take over the operations of the clearing corporation; and
(c) such other related matter.
(3) A recognised clearing corporation shall include the framework referred in sub-regulation (1) above, in its bye-laws.”
33. Regulation 44 of the principle regulations shall be substituted as under:
“44. Instruments eligible for dematerialization. – All securities defined under the SCRA and other permitted financial products shall be eligible for being held in dematerialised form in a recognised depository.”
34. In regulation 57 of the principal regulations, in sub-regulation (3), for the word “twenty”, the word “eight” shall be substituted.
35. In regulation 62 of the principal regulations, for the word “twenty”, the word “eight.” shall be substituted.
36. After regulation 63 of the principal regulations, the following regulation shall be inserted, namely:-
“63A Chief Risk Officer.- (1) A recognised market infrastructure institution shall appoint a chief risk officer to identify, monitor and initiate necessary steps to mitigate the risk associated with the functioning of a recognised market infrastructure institution.
(2) The chief risk officer shall be responsible for the overall risk management of the recognised market infrastructure institution and submit a report to the Authority on a half-yearly basis.”
“63B. Chief Legal Officer.- (1) A recognised market infrastructure institution, which is not a subsidiary of a market infrastructure institution(s) or a joint venture of market infrastructure institutions, shall be required to appoint a chief legal officer.
(2) A recognised market infrastructure institution, which is a subsidiary of a market infrastructure institution(s) or a joint venture of market infrastructure institutions, may take legal assistance from its parent entity.
Provided that if the required legal assistance is not provided by the parent entity, such a recognised market infrastructure institution shall appoint a chief legal officer to manage its legal matters.
Provided further that the Authority may require any recognised market infrastructure institution beyond a specified size and scale of operations in IFSC to appoint a chief legal officer.
(3) The chief legal officer shall be responsible for taking the necessary steps to mitigate legal risk associated with the functioning of a recognised market infrastructure institution, including but not limited to-
(a) drafting and vetting of the bye-laws or any amendments therein before submission of such documents to the Authority for approval;
(b) vetting of legal documents related to any cross-border arrangement proposed to be entered into by a recognised market infrastructure institution; and
(c) such other functions as may be specified by the governing board of a recognised market infrastructure institution or the Authority from time to time.
63 C. Chief Information Security Officer.- (1) A recognised market infrastructure institution shall appoint a chief information security officer separately and in addition to a chief technology officer.
(2) The chief information security officer shall be responsible for overseeing the cyber security posture of the recognised market infrastructure institution and shall report directly to the managing director / chief executive officer.
37. In regulation 73 of the principal regulations, after sub-regulation (5), the following sub-regulation shall be inserted, namely:-
“(6) The circulars 286/IFSCA/ CMD-DMIIT/PM/2021 dated September 13, 2021, 286/IFSCA/ CMD- DMIIT/PM/2021/001 dated November 30, 2021 and 286/IFSCA/ CMD-DMIIT/PM/2021/002 dated December 16, 202, is hereby repealed, from the date of notification of these amendment regulations.”
(7) Notwithstanding sub-regulations (6), anything done or any action taken or purported to have been taken under the circulars mentioned under sub-regulation (6), before the commencement of these amendment regulations shall be deemed to have been done or taken or commenced under the corresponding provisions of these regulations.
38. At the end of the principal regulations, the following shall be inserted as the ‘Schedule-I’ and ‘Schedule-II’, namely:-
Schedule-I
(See regulation 10A)
Part A: Code of Conduct for a recognised market infrastructure institution
A recognised market infrastructure institution shall:
(a) adhereto the provisions of the IFSCA Act, Securities Contracts (Regulations) Act, 1956, Securities and Exchange Board of India Act, 1992, Depositories Act, 1996, including any rules, regulations, circulars, guidelines and any other directions issued thereunder.
(b) adopt appropriate due diligence measures.
(c) take effective measures to ensure implementation of risk management framework and good governance practices.
(d) take appropriate measures towards investor protection and education of investors.
(e) treat all its applicants or members in a fair and transparent manner.
(f) promptly inform the Authority of any violations committed by any of its members, participants or issuer, in terms of the provisions of the IFSCA Act, Securities Contracts (Regulations) Act, 1956, Securities and Exchange Board of India Act, 1992, Depositories Act, 1996, including rules, regulations, circulars, guidelines or any other directions issued thereunder.
(g) take a proactive and responsible attitude towards safeguarding the interests of investors, integrity of market infrastructure institution’s system and the securities market.
(h) endeavor for introduction of best business practices amongst itself and its members or participants.
(i) act in utmost good faith and shall avoid conflict of interest in the conduct of its functions.
(j) not indulge in unfair competition, which is likely to harm the interests of any other market infrastructure institution, their members, participants or investors or is likely to place them in a disadvantageous position while competing for or executing any assignment.
(k) Segregate roles and responsibilities of key management personnel within the market infrastructure institution including:
(i) Clearly mapping legal and regulatory duties to the concerned position;
(ii) Defining delegation of powers to each position;
(iii) Assigning regulatory, risk management and compliance aspects to business and support teams.
(l) be responsible for the acts or omissions of its employees in respect of the conduct of its business.
(m) monitor the compliance of the rules and regulations by the members or participants and shall further ensure that their conduct is in a manner that will safeguard the interest of investors and the securities market.
Part B
(See sub-regulation (1) of the regulation 25)
Code of Conduct for governing board, directors, committee members and key management personnel
I. Governing Board
The governing board of the recognised market infrastructure institution shall-
(a) evaluate profitability margins of the market infrastructure institution.
(b) ensure adequacy of resource allocation (both financial and human) towards regulatory compliances
(c) focus on strategy, policy level issues and important matters.
(d) only in exceptional cases, review the day-to-day operational matters.
(e) oversee the critical operations including technology as well as the regulatory, risk management, compliance and investor grievance redressal functions of the market infrastructure institution.
(f) take the lead in succession planning for the managing director and other key positions.
(g) play an active role in defining, establishing and documenting risk management framework, covering risk appetite or risk tolerance policy of the market infrastructure institution and ensure that the policy contains the following:-
(i) role of risk appetite in key processes;
(ii) clear quantitative metrics and thresholds to monitor performance of the market infrastructure institution’s risk appetite;
(iii) acceptability of breaches and trigger response(s), if any;
(iv) zero tolerance for areas such as cyber security, system stability, surveillance, fair access, fraud or corruption, compliance, etc.
(h) make key stakeholders (executive and non-executive) aware of the use and value of risk appetite across the organization (including implications of breaches) and review and approve risk appetite metrics and thresholds periodically.
(i) ensure adequate independence of key functions such as regulatory and control functions (risk management, compliance and audit functions) such that;
i. regulatory and control functions have sufficient stature to perform their tasks effectively;
ii. regulatory and control functions operate independently and have appropriate direct access to the governing board of the market infrastructure institution and senior management;
iii. control functions are proactively involved in all relevant decisions and activities.
(j) Provide for three lines of defense construct where:
i. the first line of defense incorporates business units and support functions as it has the responsibility to own and manage risks associated with day to day operational activities;
ii. the second line of defense consists of various oversight functions i.e., regulatory, risk management, compliance teams; and
iii. the third line of defense comprises the internal audit function.
(k) ensure that the roles and responsibilities of management in relation to three lines of defense are clearly specified and understood and that all employees are responsible for the regulatory, risk management and compliance outcomes.
(l) ensure a culture of effective communication and challenge (i.e., encourage alternate views or questions from individuals and groups) and value and respect it.
(m) ensure that any new product, service, revenue stream is examined by the concerned department of the market infrastructure institution from the compliance and risk management perspectives in addition to normal viability issues before approving the same.
(n) review periodically all existing products, services and revenue streams.
(o) shall meet, without the presence of the managing director and any other executive director, the chief regulatory officer or compliance officer, the chief risk officer, the chief information security officer, the statutory auditor of the market infrastructure institution and any other person as determined by the public interest directors and shareholder directors to discuss important issues concerning the market infrastructure institution, on a periodic basis as specified by the Authority.
(p) periodically review the frequency of meetings and agenda items of the governing board and statutory committees to ensure that the number of meetings is rationalized and all important issues are discussed.
(q) ensure that the agenda papers are approved by the Chairman of the governing board.
(r) ensure that members of the governing board can place agenda item during their meeting.
(s) be responsible for monitoring compliance with the code of conduct by the directors of the market infrastructure institution.
(t) uphold a strong culture in the market infrastructure institution and promote target culture from the top through behaviour, actions and effective communication.
(u) communicate the guiding principles for institution’s target regulatory, compliance, risk and conduct culture.
(v) endeavor that the market infrastructure institution put in place key elements related to culture such as:
i. adequate training programs to help employees better understand expectations of behavior (for example, trainings on dilemmas);
ii. mechanisms to measure and track indicators related to culture at regular intervals;
iii. accountability mechanisms; and
iv. performance management mechanisms which take into account adherence to culture, conduct and behavior related dimensions.
II. Code of Conduct for directors, committee members and key management personnel
A. Applicable to directors, committee members and key management personnel of a recognised market infrastructure institution:
1. General Responsibility
Every director, committee members and key management personnel of the recognised market infrastructure institution shall-
(a) analyse and administer the market infrastructure institution’s issues with professional competence, fairness, impartiality, efficiency and effectiveness;
(b) submit the necessary disclosures, statement of holdings, dealings in securities as required by the market infrastructure institution from time to time as per their rules, bye-laws or articles of association;
(c) unless otherwise required by law, maintain confidentiality and not divulge or disclose any information obtained in the discharge of their duty and no such information is used for personal gains;
(d) maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of their duties in order to inspire public confidence and not engage in acts discreditable to their responsibilities;
(e) perform their duties in an independent and objective manner and avoid activities that may impair, or may appear to impair, their independence or objectivity or official duties;
(f) perform their duties with a positive attitude and constructively support open communication, creativity, dedication, and compassion;
(g) not engage in any act involving moral turpitude, dishonesty, fraud, deceit, or misrepresentation or any other act prejudicial to the administration of the market infrastructure institution;
(h) promote greater awareness and understanding of ethical responsibilities;
(i) in the conduct of their business, observe high standards of commercial honour and; just and equitable principles of trade;
(j) be exemplary in their conduct in business life which may set a standard for others;
(k) not use their position to give or receive favours to or from the executive or administrative staff of the market infrastructure institution, technology or service providers and vendors or suppliers of the market infrastructure institution, or any listed company at the stock exchange or any issuer company admitted by the stock exchanges;
(l) not commit any act which will put the reputation of the market infrastructure institution in jeopardy;
(m) comply with the provisions of all applicable laws pertaining to the securities market;
(n) directors and key management personnel shall at all point of time comply with all the internal policies of the market infrastructure institution including their code of conduct. If there is a conflict between the code of conduct policy of the market infrastructure institution with those provided by the Authority, then the policy issued by the Authority shall prevail.
2. Regulatory Compliances
Every director, committee member and key management personnel of the recognised market infrastructure institution shall—
(a) ensure that the market infrastructure institution abides by all the applicable provisions of the IF SCA Act, Securities Contracts (Regulations) Act, 1956, Securities and Exchange Board of India Act, 1992,including any rules, regulations, circulars, directions or any other instructions issued thereunder;
(b) ensure compliance at all levels so that the regulatory system does not suffer any breaches;
(c) ensure that the market infrastructure institution takes steps commensurate to honour the time limit stipulated by the Authority for corrective action.
4. Disclosures of Beneficial Interest
All directors, committee members and key management personnel shall disclose to the governing board of recognised market infrastructure institution, upon assuming office and during their tenure in office, whenever the following arises:—
(a) any fiduciary relationship of self and family members and directorship or partnership of self and family members in any broker dealer or clearing member or depository participant or registrar and transfer agent in IFSC;
(b) shareholding, in cases where the shareholding of the director or key management personnel, directly or through his family exceeds 5 percent in any listed company or in other entities related to the securities markets;
(c) any other business interests.
4. Access to Information
(a) There shall be prescribed channels through which information shall move and further there shall be audit trail of the same. Any retrieval of confidential documents or information shall be properly recorded.
(b) All such information, especially which is non-public and price sensitive, shall be kept confidential and not be used for any personal consideration or gain.
(c) Any information relating to the business or operations of the market infrastructure institution, which may come to the knowledge of directors or committee members or key management personnel during performance of their duties shall be held in strict confidence, shall not be divulged to any third party and shall not be used in any manner except for the performance of their duties.
(d) Directors shall call for information only as part of specific committees or as may be authorised by the governing board of market infrastructure institution.
5. Misuse of position
Directors or committee members or key management personnel shall not use their position to obtain business or any pecuniary benefit in the organization for themselves or family members.
B. Applicable to the Directors and Committee Members
1. Meeting and Minutes
The directors and committee members of a recognised market infrastructure institution shall—
(a) not participate in discussions on any subject matter in which any conflict of interest exists or arises, whether pecuniary or otherwise, and in such cases the same shall be disclosed and recorded in the minutes of the meeting;
(b) not encourage the circulation of agenda papers during the meeting, unless circumstances so require;
(c) ensure that minutes are recorded to capture all points of opinion comprehensively;
(d) offer their comments on the draft minutes and ensure that the same are incorporated in the final minutes;
(e) insist on the minutes of the previous meeting being placed for approval in subsequent meeting;
(f) endeavor to have the date of next meeting fixed at each governing board meeting and committee meetings respectively in consultation with other respective members of the governing board and committees;
(g) endeavor that all important agendas placed before the governing board of stock exchange and clearing corporation and committees are deliberated in a timely manner.
(h) not support any decision in the meeting of the governing board of market infrastructure institution and the committees respectively which may adversely affect the interest of investors and shall report forthwith any such decision to the Authority.
2. Role of the directors and committee members in the day to day functioning of the recognised market infrastructure institution
(a) The directors and committee members shall not interfere in the day to day functioning of the market infrastructure institution and shall limit their role to decision making on policy issues and to issues as the governing board of market infrastructure institution may decide.
(b) The directors and committee members shall abstain from influencing the employees of the market infrastructure institution in conducting their day to day activities.
(c) The directors and committee members shall not be directly involved in the function of appointment and promotion of employees unless specifically so decided by the governing board of market infrastructure institution.
3. Avoidance of conflict of interest
(a) No director or committee member of the market infrastructure institution shall participate in any decision making or adjudication in respect of any person or matter in which he or she is in any way, directly or indirectly, concerned or interested.
(b) Conflict of interest in a matter, if any, shall be decided by the governing board of the market infrastructure institution.
4. Strategic Planning
Every director and committee member of the recognised market infrastructure institution shall—
(a) participate in the formulation and execution of strategies in the best interest of the market infrastructure institution and contribute towards pro-active decision making at the governing board level;
(b) give benefit of their experience and expertise to the market infrastructure institution and provide assistance in strategic planning and execution of decisions;
(c) place priority for redressing investor grievances and encouraging fair trade practice so that the market infrastructure institution becomes an engine for the growth of the securities market.
5. Disclosure of dealings in securities by Directors of the recognised market infrastructure institution
(a) All transactions or dealings in securities in IFSC by the directors and their immediate relatives shall be disclosed to the governing board of the market infrastructure institution.
(b) All directors shall also disclose the trading in IFSC conducted by firms or corporate entities in which they hold twenty percent or more beneficial interest or hold a controlling interest, to the market infrastructure institution.
(c) The details including time period for disclosures stated above shall be provided by the market infrastructure institution, provided that the time period for disclosure shall not be later than fifteen days of the transaction/ dealing.
(d) Directors who are nominees of Government of India, its statutory bodies or Public Financial Institutions and are governed by their own codes shall be exempt from this requirement.
C. Applicable to Public Interest Directors
(a) Public Interest Directors of the market infrastructure institution shall endeavor to attend all the governing board meetings and they shall be liable to vacate office if they remain absent for three consecutive meetings of the governing board or do not attend seventy-five percent of the total meetings of the governing board in a calendar year.
(b) Public interest directors shall meet separately, at least once in six months to exchange views on critical issues. Public interest directors shall submit a report of such meeting to the Authority and to the governing board of the market infrastructure institution within the time and manner as may be specified by the Authority from time to time.
(c) Public interest directors shall identify important issues which may involve conflict of interest for the market infrastructure institution or may have significant impact on the functioning of the market infrastructure institution or may not be in the interest of securities market. The same shall be reported to the Authority in a time-bound manner.
(d) Public interest directors shall have regular oversight on observations of Authority’s inspection particularly on issues of governance standards, technology and cyber security and system audit and cyber security audit observations.
(e) Public interest directors should be proactive in identifying any issues concerning functioning of market infrastructure institution and report the same to the Authority. Public interest directors should ensureall regulatory communication/letter from the Authority are placed before the governing board with comments/report of managing director.
(f) Public interest directors shall put in place an evaluation mechanism to assess the performance of managing directors on a continuing basis in line with evaluation guidelines for public interest directors.
(g) Public interest directors to ensure that appointments of managing director be held within specified timelines. Identification of key management personnel be closely scrutinized as per the laid down procedure and exceptions should be brought to the notice of the Authority.
(h) Public interest directors should take proactive part in the deliberations of different committees and steer their functioning.
(i) Ensure adequacy of resource allocations (both financial & human) towards regulatory compliances to be ensured.
D. Applicable to Independent External Professionals
(a) Independent external professionals shall not use or act on any sensitive information received in capacity as a member of the statutory committee for obtaining any undue benefit.
E. Applicable to key management personnel
(a) Managing director of the market infrastructure institution shall meet employees without the presence of other key management personnel (the heads of departments) to discuss important issues pertaining to market infrastructure institution.
(b) Key management personnel of the market infrastructure institution shall disclose on a periodic basis as determined by the market infrastructure institution (which could be monthly), all their dealings in securities in IFSC, directly or indirectly, to the governing board or regulatory oversight committee or compliance officer of market infrastructure institution.
(c) All transactions must be of an investment nature and not speculative in nature. Towards this end, all securities purchased in IFSC must be held for a minimum period of sixty days before they are sold. In specific or exceptional circumstances, however, sale can be effected anytime by obtaining pre-clearance from the compliance officer to waive this condition after recording in writing his satisfaction in this regard.
SCHEDULE -II
[See Regulation 2 (1) (j) (iii) and 27 (2)]
Core functions of a recognised market infrastructure institution
1. For recognised market infrastructure institution, the core and critical functions shall include but not limited to:
a) Vertical 1: Critical operations
(i) Provision and operation of trading facilities, clearing and settlement, and dematerialization of financial products including holding and transfer of such financial products;
(ii) Record keeping of information related to trade, clearing and settlement of trades and dematerialized financial products;
(iii) IT infrastructure for core and critical functions;
(iv) Business continuity plan and disaster recovery operations;
(v) Cyber security and cyber resilience framework.
b) Vertical 2: Regulatory, legal, compliance, risk management and investor grievances
(i) Risk management;
(ii) Surveillance and investigation;
(iii) Listing;
(iv) Registration of broker dealer, clearing member or depository participant;
(v) Admission of issuer or financial product;
(vi) Legal;
(vii) Compliance;
(viii) Inspection;
(ix) Enforcement;
(x) Arbitration and grievance redressal mechanism;
(xi) Member default;
(xii) Investor protection and services.
c) Vertical 3: Other Functions including Business Development
(i) Sales;
(ii) Marketing;
(iii) Product Development;
(iv) Finance.
K. RAJARAMAN, Chairperson
[ADVT.-III/4/Exty./653/2024-25]
