SEBI Proposes Easing Director Eligibility for Market Infrastructure Institutions and Setting Norms for Key Officials — September 9, 2026

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing key governance reforms for Market Infrastructure Institutions (MIIs), which include stock exchanges, clearing corporations, and depositories. The regulator's proposals seek to resolve practical challenges in recruiting suitable candidates for governing boards and establish a standard framework for critical executive posts.

Under existing regulations—governed by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, and the SEBI (Depositories and Participants) Regulations, 2018—individuals associated with trading members (TMs), clearing members (CMs), or depository participants (DPs) are barred from serving on MII boards. The regulator observed that these restrictions often disqualify experienced professionals who hold directorships in diversified parent entities or conglomerates that house broking or depository arms separated by internal informational barriers ("Chinese walls").

Widening the Talent Pool for Governing Boards

To address the shortage of candidates, particularly for the position of Public Interest Directors (PIDs), SEBI has proposed extending an exemption that currently applies to public sector banks and financial institutions. Under the proposal, directors of companies with a "well-diversified shareholding" will no longer be automatically disqualified simply because an associate company operates as a TM, CM, or DP.

Proposed Shareholding Criteria:

• A company will be classified as having a well-diversified shareholding if no individual shareholder (excluding public-sector entities), acting alone or in concert, holds 10% or more of the equity stake or voting rights.
• The shareholder must not exercise management control over the company.

The regulator stated that this carve-out will facilitate the inflow of top-tier talent into MII boards while preserving necessary firewalls against conflicts of interest.

Standardized Norms for Key Managerial Personnel

In addition to board-level changes, SEBI highlighted the absence of uniform benchmarks for critical management functions that manage systemic and operational risks. The market regulator proposed the creation of Standard Operating Procedures (SOPs) specifying mandatory qualifications, experience levels, skill sets, and certifications for four core roles:

• Chief Technology Officer (CTO)
• Chief Information Security Officer (CISO)
• Compliance Officer (CO)
• Chief Risk Officer (CRiO)

Mandatory Timelines and Continuity Measures

Because MIIs operate as critical public utilities and first-line market regulators, SEBI stressed the importance of operational continuity.

Key Operational Proposals:

• MIIs must establish advance succession planning to avoid unexpected gaps in critical managerial positions.
• Any vacancy arising in the CTO, CISO, Compliance Officer, or Chief Risk Officer positions must be filled within a strict timeframe of three months.
• SEBI is also seeking feedback on whether MIIs should mandatorily designate deputies for each of these key managerial positions to ensure uninterrupted operational oversight.

The capital markets regulator has invited comments and feedback from industry stakeholders and the public on the draft proposals until September 30.

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