SEBI has floated a discussion paper to review the extant framework of ownership and governance norms in Stock Exchanges and Depositories (also known as Market Infrastructure Institutions or MIIs), with a view to facilitate new entrants to set up MIIs and liberalize their ownership framework.
The extant framework under Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and the Depositories and Participants Regulations, 2018, caps the ownership of MIIs at a shareholding limit of not more than 5% for individuals and other entities (domestic or foreign) and up to 15% for institutions (domestic or foreign) such as stock exchange, depository, banking company, insurance company etc. Unlike the banking and insurance sectors where there are no limits on shareholding for promoters at the initial stage of setting up of the business subject to dilution of shareholding over time, the ownership framework in MIIs have a default precondition of dispersed shareholding at the time of setting up of a MII. In SEBI’s view, this deprives the promoter / potential entrant of a chance to exercise sufficient control and limits the upside gains of entrepreneurial capital to the extent of one’s shareholding. It is therefore thought necessary to consider a liberalized framework for MIIs so as to allow a higher shareholding at the initial / inception stage and thereafter a dilution in the ownership over a period of time.
To this end the paper makes the following key proposals:
In case of setting up of a new MII :
In case of an existing MII : The framework would be the same as for setting up a new MII, except that any acquisition of 25 per cent. or more shall be subject to prior approval of SEBI and compliance with provisions of SEBI Takeovers Regulations (in case of both, listed or unlisted MII). Any merger & acquisition in a MII shall be subject to prior approval from SEBI.
Changes in Governance norms : It is proposed that a Public Interest Director (PID) should be one out of the three members in the Grievance Redressal Committee in case of claims exceeding Rs. 25 lakhs. The Nomination and Remuneration Committee (NRC) should have two PIDs and an equivalent number of shareholder directors, if available. An Independent External Person (IEP) may be inducted in the NRC only for recommending the selection of the Managing Director (MD) and not of the Chief Executive Officer (CEO). The MD & CEO shall be permanent invitees to the NRC, except when his/ her appointment/ compensation/ performance appraisal is being considered.
The Standing Committee on Technology shall include the MD & CEO and Chief Technology Officer as permanent invitees ; The Regulatory Oversight Committee may comprise of PID (at least 50%), SHDs (including MD & CEO) and IEP. KMPs may be invitees. The Risk Management Committee should have at least two PIDs along with IEPs and Shareholder Directors (including MD& CEO). The appointment of MD & CEO shall be for a maximum three terms of three years each in place of the present two terms of up to five years each.
Public comments are invited on these proposed changes by 5 February 2021. To refer to the discussion paper, dated 6 January 2021, click here.
The Bar Council of India does not permit solicitation of work and advertising by legal practitioners and advocates. By accessing the Shardul Amarchand Mangaldas & Co. website (our website), the user acknowledges that: