Monitoring Shareholding of MIIs: SEBI’s New Circular

Key notes from SEBI circular on : Monitoring Shareholding of Market Infrastructure Institutions (MIIs) dt 14th Oct 24

Summary: On October 14, 2024, SEBI issued circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/139 to establish a framework for monitoring shareholding of Market Infrastructure Institutions (MIIs), which includes both listed and unlisted entities. The circular requires MIIs to disclose their shareholding patterns on their websites according to the formats specified in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Each MII must appoint a Designated Depository (DD) for monitoring, unless its ISIN is frozen for debits. The DD is responsible for coordinating information among depositories, monitoring Trading Members’ shareholding limits, and ensuring compliance with regulatory requirements. MIIs must disclose shareholding on a quarterly basis, providing details of their equity share capital at the time of DD appointment. Shareholders acquiring or holding 2% or more equity shares must be deemed “fit and proper.” In cases of breach of criteria, voting rights may be frozen, and corporate benefits will be withheld. The circular takes effect 90 days from issuance, urging MIIs to implement necessary systems and inform market participants accordingly. This step aims to enhance compliance and transparency in shareholding structures within the financial market infrastructure.

SEBI has issued circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/139 dt 14th Oct 24 for “Monitoring Shareholding of Market Infrastructure Institutions (MIIs) “

Key summary points can be highlighted as below:

• The framework for monitoring and ensuring compliance with shareholding norms currently applicable to listed Stock Exchanges and listed Depositories shall be applicable to all MIIs (i.e. both listed and unlisted)
• All MIIs shall disclose their shareholding pattern as per the requirements and formats specified for listed companies under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015) on their respective websites
• Every MII shall appoint a depository as “Designated Depository (DD)”
• However, in case the ISIN of any MII is frozen for debits by the company (MII), the appointment of DD is not required for monitoring the shareholding limits of that MII.
• All MIIs shall disclose their shareholding with category wise breakup as per the requirements and formats specified for listed companies under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015) on a quarterly basis on their respective websites.
• The MIIs shall at the time of appointment of the DD provide the details of paid – up equity share capital including the number of shares to the DD.
• Responsibilities of DD

1. For Stock Exchange:

• a. mechanism for coordination between the depositories for sharing of information regarding the shareholding of the stock exchange and ensure that the shareholding of Trading Members (TMs)
• b. Monitor the aggregate shareholding limit of the TMs
• c. Generate aggregate shareholding reports of TMs
• d. Send alerts to the stock exchange and TMs
• e. Inform to the stock exchange

2. Others: The other depository shall provide on a daily basis the demat holdings of each TMs,

• The TMs, their associates and agents shall obtain prior approval of the stock exchange (s) before acquisition of further shares, once the aggregate shareholding of all TMs, their associates and agents crosses the caution limit of 45%.
• The TMs, their associates and agents shall also refer to the aggregate shareholding pattern under the category of TMs, their associates and agents

3. For recognized Clearing Corporations (CCs)

• The DD shall monitor that at least 51% of paid – up equity share capital of a CC shall always be held by one or more recognized stock exchange(s) and no recognized stock exchange shall, directly or indirectly, either individually or together with persons acting in concert, acquire or hold more than 15% of the paid – up equity share capital in more than one CC and take consequential actions as mentioned at paragraph 4.9 of this circular in case of any breach

4. Fit and Proper

• All the shareholders should be fit and proper persons at all times. For shareholding of a person who directly or indirectly, acquires or holds 2% or more equity shares or voting rights of any recognized stock exchange or depository, the MII shall ensure that such shareholders are fit and proper at all times.

• The MIIs shall notify on its website and undertake all measures to make investors aware of the requirement of eligibility for acquiring or holding its shares and fit and proper criteria

• In the pre – listing scenario, the exchange and depository coming out with a public offering shall include a declaration in the application form stating that the applicant is fit and proper
• In the post listing scenario, a reference of the applicable Regulation with regard to fit and proper shall be made part of the contract note
• The listed stock exchange and listed depository and the stock exchange where the shares are listed shall notify on their websites that the shares of the listed stock exchange and listed depository shall only be dealt by fit and proper persons
• The MIIs shall submit to SEBI on a quarterly basis an exceptional report regarding the shareholders who are not fit and proper

5. Freezing of Voting Rights and Corporate Benefits

• Upon breach of the fit and proper criteria; and various threshold limits for shareholding of MIIs, the DD shall apply ISIN level freeze on the demat account of the relevant shareholder for the excess shareholding and inform the respective MII and RTA to disable e-voting for the account holder on EoD basis
• With respect to freezing of voting rights, the DD shall inform the MII, RTA and the other depository about the breach by the shareholders on EoD basis.

• With respect to corporate benefits, the DD shall inform the list of shareholders whose corporate benefits are to be frozen, to the MII and other depository on EoD basis.
• The divestment of any excess shareholding in a listed MII beyond the specified limit would be through a special window provided by the stock exchange where the shares of MII are listed.
• The stock exchange or depository submitting application for listing of its securities to SEBI shall ensure strict compliance with Chapter VII of SECC Regulations, 2018 and Chapter VIII of D&P Regulations, 2018 respectively.

6. Applicability:

• The provisions of this circular shall come into effect from 90th day from the date of issuance of the circular.

7. Advise to MII

• take necessary steps and put in place necessary systems for implementation of the above.
• Make necessary amendments to the relevant bye – laws, rules and regulations, wherever required, for the implementation of the above bring the provisions of this circular to the notice of the market participants (including investors) and disseminate the same on their website