Sebi moots new ownership framework for setting up market infrastructure institutions
Sebi on Wednesday proposed a new framework for ownership of market infrastructure institutions to facilitate new entrants to set up stock exchanges and depositories.
In a discussion paper, the regulator has suggested a liberalised framework in the landscape of MIIs (Market Infrastructure Institutions) by allowing higher shareholding at the inception stage and prescribing a dilution in the ownership over a period of time.
New norms pertaining to tenure of MD and CEO of MIIs -- stock exchanges, depositories and clearing corporations -- have also been proposed.
Besides, Sebi has recommended a more diversified composition of statutory committees at MIIs to boost corporate governance norms.
The regulator said there is a need to incentivise fintech players through suitable relaxations in the ownership framework to enter the Indian MII space.
It has been proposed that promoters -- resident individuals, domestic institutions (resident owned and controlled) -- setting up the MII may, directly or indirectly, either individually or together with persons acting in concert, can hold up to 100 per cent shareholding.
In case of foreign entities, such limit has been proposed up to 49 per cent.
The shareholding of such resident individuals and domestic institutions should be brought down to not more than 51 per cent or 26 per cent in 10 years from the date of commencement of business. In the case of foreign entities, their shareholdings should be reduced to 26 per cent or 15 per cent during the period.
MII should also be a public limited company.
In addition, both domestic and foreign promoters should comply with certain requirements such as no conflict of interest and at least 50 per cent of ownership of the proposed MII should be represented by individuals or entities having at least five years of experience in areas of capital markets or technology-related to financial services.
The present framework caps the ownership of MIIs at a lower shareholding limit, which is not more than 5 per cent for individuals and institutions (domestic or foreign) in general and permits only up to 15 per cent ownership stake by select category of institutions.
Also, it has been proposed that the appointment of MD and CEO of the MII should be for maximum three terms of three years each, subject to the age limit of 65 years.
The requirement of conducting afresh appointment process for MD post, each term, should continue to apply, as per the discussion paper.
At present, MD and CEO of a MII can be appointed for a maximum of two terms of up to five years each, with an age limit of 65 years.
The Securities and Exchange Board of India (Sebi) has sought comments from the public on the discussion paper till February 5.
The watchdog noted that Indian securities market has been characterised by dominant level of market concentration by a single entity in the trading and depository space.
Since, stock exchanges and depositories fundamentally represent the intersection of technology and markets, Sebi said there is a concern that excessive concentration may lead to abuse of one’s dominant position in the business as well as institutional tardiness in responding in a timely manner to the changing dynamics of capital markets ecosystem.
“Entities may fall behind the curve in embracing innovations which have a direct bearing on enhancing efficiency in trading and record-keeping space and improving supervision and risk management practices,” it added.
According to Sebi, there is a need to forge a competitive landscape in MIIs’ space by way of creating an enabling ownership framework which facilitates not only the entry of new players but also enables merger and acquisition of the existing entities in/ by the new players who may like to challenge other MIIs in their already established domain.
Also, the regulator has suggested changes in the composition of the regulatory committees at MIIs to ensure enhanced supervision and accountability so that such institutions can fulfill their role as public utilities and first level regulators.
With regard to grievance redressal committee, Sebi said one out of three members in the panel should be a Public Interest Director (PID) in case of claims exceeding Rs 25 lakh.
On the proposition of nomination and remuneration committee, it has been proposed that the panel should comprise two Public Interest Directors and equivalent number of shareholder directors, if available.
Further, an independent external person should be inducted in the panel only for recommending selection of MD. In addition, MD and CEO should be permanent invitee to the committee, except when his/ her appointment and compensation appraisal is being considered.
Changes have been proposed for standing committee on technology, regulatory oversight committee and risk management committee.