SEBI directs MIIs to establish SOPs for disciplinary actions against KMPs | Stock Market News

The Securities and Exchange Board of India (Sebi) has issued new directives for Market Infrastructure Institutions (MIIs) to develop internal Standard Operating Procedures (SOPs) for disciplinary actions against Key Managerial Personnel (KMPs) in case of non-compliance with regulatory requirements and internal guidelines.

The SOPs must be approved by the Nomination and Remuneration Committee (NRC) and the MII’s governing board. 

These procedures should outline potential actions against KMPs, including advisory warnings, impact on annual increments or promotions, suspension, or even termination. 

In severe cases, the invocation of malus-clawback provisions may also be considered to reduce or cancel an executive’s compensation.

If repeated or serious non-compliance is identified, stringent measures such as termination or financial penalties could be enforced. The scenarios for invoking malus-clawback provisions must be explicitly detailed within the SOPs.

Sebi’s regulations stipulate that all MIIs must adhere to the same corporate governance norms and disclosure requirements as those for listed companies. 

To further bolster regulatory oversight, MIIs are encouraged to integrate advanced technologies like Regulatory Technology (RegTech) and Supervisory Technology (SupTech). These systems should streamline the submission process for members, such as stockbrokers and clearing members, by enabling online submissions and reducing the need for physical documentation. 

Alerts and reports generated from these submissions will enhance the MII’s ability to meet its regulatory and supervisory objectives. Additionally, MIIs must disclose all material information about their members on their websites.

To ensure secure handling of sensitive information, MIIs are also required to establish an internal policy for sharing confidential data, in line with the Stock Exchanges and Clearing Corporations and Depositories & Participants Regulations. 

The policy should address both online and offline data-sharing methods, including emails and social media, with appropriate delegation of authority. It must also include monitoring mechanisms through technology and conduct periodic audits to ensure compliance. Any data breaches must be reported to SEBI within 15 days, with details on remedial actions.

In the area of governance, Sebi mandates that MIIs forward at least two candidate profiles for certain positions, such as Compliance Officer (CO) and Chief Risk Officer (CRiO). A two-stage process has been introduced for ease of business: first, MIIs will submit brief profiles for shortlisting, and second, complete documents for SEBI’s final approval. 

The regulations also specify reporting structures for KMPs to maintain their independence, ensuring they can report directly to committees without the interference of the Managing Director or other executives.

These provisions will take effect from April 1, 2025, and aim to strengthen the governance framework within MIIs.

Sebi’s move follows its several regulatory circulars applicable to stock brokers and MIIs to maintain effective surveillance.

In June, Sebi notified a framework on financial disincentives for MIIs, which include stock exchanges, clearing corporations and depositories, for any lapse in detecting abnormal or suspicious trading activity.

A month later, Sebi directed stockbrokers to establish an institutional mechanism to detect and prevent fraud or market abuse.

These circulars indicate that the regulator is pushing for self-regulation by market intermediaries to add to its own surveillance.