24/088 on June 25, 2024, addressing the statutory committees at Market Infrastructure Institutions (MIIs) such as stock exchanges, clearing corporations, and depositories. The circular aims to ensure effective oversight by prescribing guidelines for the functions and composition of these statutory committees. The regulations require MIIs to have functional committees like the Member Committee and the Nomination and Remuneration Committee, as well as oversight committees including the Standing Committee on Technology, Regulatory Oversight Committee, Risk Management Committee, and an Investment Committee.
SEBI’s circular incorporates recommendations from the Committee on Strengthening Governance of MIIs and the Industry Standards Forum (ISF) of MIIs. The revised terms of reference (TOR) for the statutory committees are provided in the annexure of the circular. The key principles for the composition and quorum of these committees mandate that the total number of Public Interest Directors (PIDs) must not be less than the other members combined, and the chairperson must be a PID. Voting is valid only if PIDs’ votes equal or exceed those of the other members, and invitees do not have voting rights. Additionally, the TOR functions cannot be delegated except for certain operational activities of the Member Committee, which can be handled by internal committees.
The circular also stipulates compliance measures for MIIs, including ensuring PIDs do not serve on more than five committees simultaneously and adhering to guidelines for Independent External Professionals (IEPs). These professionals must maintain integrity, sound reputation, and avoid conflicts of interest. MIIs are required to frame guidelines for the appointment, tenure, and conduct of IEPs. Additionally, MIIs must ensure their governing boards are responsible for activities not covered under statutory committees and comply with mandatory committee requirements under relevant laws for listed companies.
This circular supersedes specific provisions from previous master circulars for stock exchanges, clearing corporations, and depositories, and its implementation is set to commence 30 days from issuance. MIIs must amend their bye-laws, rules, and regulations accordingly and disseminate the circular’s provisions to market participants and on their websites.
Securities and Exchange Board of India
Circular No. SEBI/HO/MRD/MRD-PoD-3/2024/088 Dated: June 25, 2024
To
All Recognized Stock Exchanges,
All Recognized Clearing Corporations and
All Depositories
Sir/ Madam,
Subject: Statutory Committees at Market Infrastructure Institutions (MIIs)
1. In order to ensure effective oversight of the functioning of Stock Exchanges, Clearing Corporations and Depositories (hereinafter collectively referred as Market Infrastructure Institutions (MIIs)), SEBI at Paragraph 2.2 of Chapter 6 of Master Circular No.SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 dated October 16, 2023 for ‘Stock Exchanges and Clearing Corporations’ and at paragraph 4.66 of Master Circular No. SEBI/HO/MRD/MRD-PoD-2/P/CIR/2023/166 dated October 06, 2023 for ‘Depositories’, prescribed the guidelines with regard to the functions and composition of various statutory committees of MIIs.
2. Regulation 29 of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (hereinafter referred as “SECC Regulations, 2018”) & Regulation 30 of Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 (hereinafter referred as “D&P Regulations, 2018”), inter alia, state that, MIIs shall have the following statutory committees:
2.1. Functional Committees:
2.1.1. Member Committee (MC)1 and
2.1.2. Nomination and Remuneration Committee (NRC)
2.2. Oversight Committees:
2.2.1. Standing Committee on Technology (SCOT)
2.2.2. Regulatory Oversight Committee (ROC) and
2.2.3. Risk Management Committee (RMC)
2.3. Investment Committee
3. Based on the recommendations of the Committee on Strengthening Governance of Market Infrastructure Institutions, the functions, composition and Terms of Reference (TOR) of the statutory committees of MIIs were further deliberated in the Industry Standards Forum (ISF) of MIIs.
4. Taking into consideration the recommendations of the ISF of MIIs and subsequent deliberations, the revised TOR of statutory committees of MIIs is provided at Annexure–A.
5. The overarching principles for composition and quorum for the statutory committees at MIIs shall be as under:
5.1. Composition:
5.1.1. The composition of statutory committees at MIIs shall be subject to the following:
| Composition of Statutory Committees at MIIs | ||
| S.N. | Name of Statutory
Committee |
Composition |
| 1.
|
Member
Committee (MC)
|
a. The Committee may include two Key Management Personnel (KMP) including the Managing Director (MD), Non-Independent Directors (NIDs) (other than Executive Director2), Independent External Professionals (IEPs) along with Public Interest Directors (PIDs).
b. The committee shall be chaired by the PID with expertise in Capital Markets. |
| 2. | Nomination & Remuneration Committee (NRC) | a. The Committee may include NIDs (other than Executive Director and MD), IEPs along with PIDs.
b. IEPs may be part of the committee for the limited purpose of recommendation relating to selection of the MD. |
| 3. | Standing Committee on Technology (SCOT) |
a. The Committee may include the MD, NIDs (other than Executive Director), at least 2 IEPs along with PIDs.
b. The IEPs should be proficient in technology with at least one of them being an expert and practitioner in cyber security. c. The Chief Technology Officer (CTO) and Chief Information Security Officer (CISO) should be invitees to the meetings of the Committee. d. The committee shall be chaired by the PID with expertise in technology. |
| 4. | Regulatory Oversight Committee (ROC) |
a. The Committee may include NIDs (other than Executive Director and MD) and IEPs, along with PIDs.
b. Relevant KMP(s) may be invited to the meetings of the committee, whenever required. c. The Committee shall be chaired by the PID with expertise in legal and regulatory practices. |
| 5. | Risk Management Committee (RMC) |
a. The Committee may include the MD, NIDs (other than Executive Director) and IEPs, along with PIDs.
b. The Chief Risk Officer (CRiO) and CISO should be invitees to the meetings of the Committee. c. If a PID with expertise in risk management is present in the governing board, the committee may preferably be chaired by the said PID. |
| 6. | Investment Committee (IC) |
a. The Committee may include the MD, NIDs (other than Executive Director), IEPs, along with PIDs. |
5.1.2. In any statutory committee, the total number of PIDs shall not be less than the total number of other members of the Committee (including IEPs) put together. In case of SCOT, the total number of PIDs shall not be less than the total number of other members of the Committee, excluding IEPs.
5.2. The Chairperson of each statutory committee at MII shall be a PID.
5.3. The voting on a resolution in the meetings of the statutory committees at MIIs shall be valid only when the number of PIDs that have casted their vote on such resolution is not less than the total number of other members put together who have casted their vote on such resolution.
5.4. The invitees, if any, to the meetings of the Committees shall not have any voting rights.
5.5. The casting vote in the meetings of the statutory committees shall be with the Chairperson of the committee.
5.6. The functions or terms of reference of any statutory committee cannot be delegated. However, for the Member Committee (MC) of MIIs, certain operational activities of the Committee can be delegated to Internal Committee(s) (ICs). In such cases the ICs shall at least have one member from the MC, other than KMPs.
5.7. MIIs shall lay down the policy for the procedure for conducting of meetings, frequency of meetings, timelines for placing of agenda papers, etc., of their statutory committees.
6. If certain activities of the MII are not covered under the TOR of statutory committees, the governing board of the MII shall be directly responsible for the functioning and oversight of such activities. Further, in order to ensure accountability within the MII, the governing board and each statutory committee shall identify the KMP(s) or employees for executing the responsibilities assigned to them by the governing board or statutory committees.
7. Further, MIIs shall ensure compliance with the following:
7.1. Over and above the statutory committees, the requirement to have mandatory committees under relevant laws for listed companies shall apply mutatis mutandis to MIIs.
7.2. PIDs in Statutory Committees at MIIs:
7.2.1. PIDs on the governing board of a MII shall not act simultaneously as a member on more than five statutory committees of the MII.
7.2.2. The above restrictions shall not be applicable to committees constituted under other relevant laws such as The Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, amongst others.
7.2.3. MIIs shall ensure availability of the required number of PIDs in order to fulfil the requirement of composition of statutory committees.
7.3. IEPs in Statutory Committees at MIIs:
7.3.1. The IEPs forming a part of statutory committees shall be from amongst the 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; however, they shall not be associated in any manner with the relevant MII, its associates, its subsidiaries, any other entity associated with the MII and its members.
7.3.2. MIIs shall frame the guidelines for appointment, tenure, code of conduct, etc., of IEPs. Extension of the tenure may be granted to IEPs at the expiry of the tenure, subject to performance review in the manner prescribed by SEBI for PIDs.
7.3.3. The maximum tenure limit of IEPs in a committee of MII shall be at par with that of PIDs, as prescribed under Regulation 24(3) of the SECC Regulations, 2018.
7.3.4. IEPs shall not use or act on any sensitive information received in capacity as a member of the statutory committee for obtaining any undue benefit.
7.4. The members of statutory committees shall abide by the code of conduct as applicable to them in terms of both SECC Regulations, 2018 and D&P Regulations, 2018.
7.5. In the interest of securities market, SEBI may suo moto nominate members on any statutory committee of the MIIs, if felt necessary.
7.6. MIIs shall devise an internal mechanism to obtain regular feedback, inputs, suggestions, etc. on regulatory, non-regulatory and operational matters from various stakeholders including trading members, clearing members and depository participants, investors, etc.
7.7. The newly recognized stock exchange, clearing corporation and depository shall submit a confirmation to SEBI within three months from the date of their recognition regarding the formation and composition of statutory committees.
8. In view of the revised TOR of statutory committees at Annexure A, paragraph 6.6.1 of Chapter 3 of Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023 has been modified as under:
“6.6.1. The Regulatory Oversight Committee (“ROC”) of the CC shall manage the Core SGF.”
9. All references of “Member and Core Settlement Guarantee Fund Committee” or “MCSGFC” as provided in Master Circular No. SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 dated October 16, 2023 for Stock Exchanges and Clearing Corporations shall be read as “Member Committee” or “MC” respectively. Appropriate amendments to SECC Regulations, 2018 shall be notified in this regard.
10. Applicability:
10.1. The provisions of this Circular shall come into force from 30th day of issuance of this circular.
10.2. The following provisions of Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023 and Master Circular for Depositories dated October 06, 2023 pertaining to statutory committees stand rescinded with effect from the date of implementation of this circular:
10.2.1. Paragraph 2.2, except paragraph 2.2.3.4 of Chapter 6 of Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023.
10.2.2. Paragraph 4.66, except paragraphs 4.66.2.4 and 4.66.3 of Section 4 of Master Circular for Depositories dated October 06, 2023.
11. MIIs are advised to:
11.1. take necessary steps to put in place systems for implementation of the above.
11.2. make necessary amendments to the relevant bye-laws, rules and regulations, wherever required, for the implementation of the above; and
11.3. bring the provisions of this circular to the notice of market participants (including investors) and also to disseminate the same on their website.
12. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, Section 26(3) of the Depositories Act, 1996 and Regulation 97 of Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
13. This circular is available on SEBI website at www.sebi.gov.in at “Legal Framework→ Circulars”.
Yours faithfully
Hruda Ranjan Sahoo
Deputy General Manager
Market Regulation Department
E-mail: [email protected]
Ph. No: 022-26449586.
Notes:
1 SEBI Board in its meeting dated April 30, 2024 approved the amendment to Clause (a) of sub-regulation (2) of Regulation 29 of SECC Regulations, 2018 to change the name of “Member and Core Settlement Guarantee Fund Committee” to “Member Committee”. Appropriate amendments to SECC Regulations, 2018 is being notified.
2 As per SECC Regulations, 2018 and D&P Regulations, 2018, any employee of an MII may be appointed on the governing board in addition to the managing director and such director shall deemed to be a non-independent director. Such employee of MII appointed to the governing board has been termed as “Executive Director”.
