4 min readMumbaiUpdated: Sep 10, 2026 07:48 AM IST
The Securities and Exchange Board of India (SEBI) has proposed changes to the governance framework of market infrastructure institutions (MIIs), including stock exchanges, clearing corporations and depositories. They aim to widen the pool of eligible directors and strengthen requirements for key technology, cybersecurity, compliance and risk-management officials.
In a consultation paper issued on Wednesday, the regulator proposed two broad changes. First, it wants to ease existing restrictions on who can serve on the governing boards of MIIs. Second, it proposes a standard operating procedure (SOP) laying down the qualifications, experience, skills and certifications required for four key managerial positions — Chief Technology Officer (CTO), Chief Information Security Officer (CISO), Compliance Officer (CO) and Chief Risk Officer (CRiO).
The regulator has proposed extending an existing exemption to companies with well-diversified shareholding.
Currently, the directors of public financial institutions and certain banks are exempt from being treated as trading or clearing members for the purpose of board restriction, even where the institution or its associate has such a market role. Now, SEBI wants to extend a similar carve-out to directors of companies that have associates which are trading members, clearing members or depository participants, provided the company has sufficiently diversified ownership.
SEBI defines well-diversified shareholding
The regulator has also proposed a specific definition of “well-diversified shareholding”. Under the proposal, no shareholder other than public-sector shareholders, individually or together with persons acting in concert, should directly or indirectly own 10% or more of the company, control it, or hold.
“The existing carve-out provided to directors of public financial institutions or banks which are in the public sector, may be extended to directors of companies which have associates as TM/CM or DP but have well diversified shareholding,” the SEBI paper said.
“Well diversified shareholding may be explicitly defined as no shareholder other than the shareholders which are in public sector, either individually or together with persons acting in concert, directly or indirectly owns more than or equal to 10% stake, or control or hold shares carrying more than or equal to 10% of the voting rights of such company,” it said.
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Proportionate rules
The changes come in the backdrop of a financial sector where boundaries between businesses are becoming blurred. Large banking and financial groups today can have interests spanning stock broking, insurance, asset management and other capital-market activities. This makes a blanket approach to determining whether a director has a potential conflict difficult to apply.
The existing rules were introduced after the demutualisation of stock exchanges, when SEBI progressively restricted the representation of trading and clearing members on exchange boards. Following recommendations of the Bimal Jalan Committee, SEBI’s board in 2012 approved a framework under which trading or clearing members could not serve on the boards of stock exchanges.
Similar restrictions were applied to depositories in relation to their depository participants.
The rationale was to prevent conflicts of interest. MIIs are not merely commercial entities — they are critical market infrastructure and also perform regulatory functions. Keeping representatives of entities that directly use their platforms away from their governing boards was intended to strengthen independence and prevent potential conflicts.
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Lack of suitable candidates
Based on the experience from director appointments on the governing board of MIIs, it was seen that difficulties were faced by MIIs in getting suitable candidates as directors, especially for Public Interest Directors (PIDs), due to the existing provisions, according to SEBI.
Under the current rules, a person can be treated as a trading member, clearing member or depository participant for eligibility purposes merely because they are a director of an entity that has an associate which is a trading member, clearing member or depository participant.
This can create problems in large conglomerates or holding-company structures, where subsidiaries may operate independently and have little operational connection with one another.
SEBI said a director of one company within such a group can become ineligible to serve on an MII board because another subsidiary of the same conglomerate operates as a trading member, clearing member, or depository participant. The regulator believes this can narrow the talent pool available to MIIs.
