Committees at Market Infrastructure Institutions (MIIs) - SEBI - SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13

CIRCULAR SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 January 10, 2019 To All Stock Exchanges, Clearing Corporations and Depositories. Sir/ Madam, Subject: Committees at Market Infrastructure Institutions (MIIs) 1. The erstwhile Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 [SECC Regulations, 2012] and SEBI(Depositories and Participants) Regulations, 1996 [SEBI (D P) Regulations, 1996], read-with circulars issued thereunder, prescribed Stock Exchanges, Clearing Corporations and Depositories (herein after referred as Market Infrastructure Institutions or MIIs) to constitute various committees in order to ensure effective oversight on the functioning of MIIs. 2. Based on decisions taken by SEBI Board in its meeting dated June 21, 2018, inter alia related to rationalization of statutory committees at MIIs, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 [SECC Regulations, 2018] and SEBI (Depositories and Participants) Regulations, 2018 [SEBI (D P) Regulations, 2018], were notified on October 3, 2018 and the SECC Regulations, 2012 and SEBI (D P) Regulations, 1996 were repealed. 3. Given that the scope of work of some of the committees at MIIs were inter-related and overlapping, SEBI Board, in its meeting dated June 21, 2018, inter alia decided to rationalize the constitution of existing regulatory committees at MIIs. 4. Accordingly, in respect of statutory committees at MIIs, the Regulation 29 of SECC Regulations, 2018 Regulation 30 of SEBI (D P) Regulations, 2018, reads as under: ( 1) Every recognised stock exchange / recognized clearing corporation or depositories [as applicable], shall constitute the committees as per sub-regulation (2) and sub-regulation (3). (2) Functional committee, comprising: a. Member selection committee; b. Investor grievance redressal committee; and c. Nomination and remuneration committee. (3) Oversight committees, comprising: a. Standing committee on technology; b. Advisory committee; c. Regulatory oversight committee; and d. Risk management committee. (4) The composition, quorum and functions of the committees under sub-regulation (2) and sub-regulation (3) of these regulations shall be in the manner as specified by the Board from time to time. 5. Considering that the committees at MIIs have been rationalised into aforementioned seven committees, based on consultation with MIIs, it has been decided that the functions of these seven committees, along-with the detailed composition of each committee shall be as provided at Annexure A . 6. Further, while the aforementioned annexure provides for the composition that is specific to each statutory committee at MII, the overarching principles for composition and quorum of the statutory committee at MIIs shall be as under, which shall be applicable to all committees with an exception for Investor Grievance Redressal Committee (IGRC): a. On each committees at MIIs, except IGRC, the number of Public Interest Directors (PIDs) shall not be less than the total of number of shareholder directors, Key Management Personnel (KMPs), independent external persons, etc. put together, wherever shareholder directors, KMPs, independent external persons, etc. are part of the concerned committee. b. PID shall be chairperson of each committee at MII. c. To constitute the quorum for the meeting of the MII committee, the number of PIDs on each of the committees at MIIs shall not be less than total number of other members (shareholder directors, KMPs, independent external persons, etc. as applicable) put together. d. The voting on a resolution in the meeting of the committees at MIIs shall be valid only when the number of PIDs that have cast their vote on such resolution is equal to or more than the total number of other members (shareholder directors, KMPs, independent external persons, etc., as applicable) put together who have cast their vote on such resolution. e. The casting vote in the meetings of the committees shall be with the chairperson of the committee. f. Apart from that specifically provided in the Annexure, whenever required, a committee may invite Managing Director, other relevant KMPs and employees of the MII. However such invitee shall not have any voting rights. As regards the composition and quorum of IGRC, the same shall be as prescribed in the enclosed Annexure A. 7. Further, MIIs are directed to adhere to the following: a. Over and above the statutory committees mentioned at point 4 above, the committees that are mandated by relevant law for listed companies shall apply mutatis mutandis to MIIs. b. MIIs shall lay down policy for the frequency of meetings, etc., for the statutory committees. c. PIDs in Committees at MIIs: i. SECC Regulations 2018 and SEBI (D P) Regulations 2018 prescribe that a PID on the board of a MII shall not act simultaneously as a member on more than five committees of that MII. ii. It is clarified that the above limitation on maximum number of committees that a PID can be member of, shall be applicable only to statutory committees prescribed by SEBI under SECC Regulations 2018 and SEBI (D P) Regulations, 2018, and circulars issued thereunder. The said requirement shall not be applicable to committees constituted under Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements), 2015, amongst others. iii. In case of non-availability of adequate number of PIDs in a MII, the relevant MII shall take steps to induct more PIDs in order to fulfil the requirement of composition of committees within a MII. d. Meeting of PIDs: i. As per code of conduct for PIDs provided in SECC Regulations 2018 SEBI (D P) Regulations 2018, the PIDs shall be required to meet separately every six months. It is added that all the PIDs shall necessarily attend all such meetings of PIDs ii. The objective of such meetings, shall include inter alia reviewing the status of compliance with SEBI letters/ circulars, reviewing the functioning of regulatory departments including the adequacy of resources dedicated to regulatory functions, etc. PIDs shall also prepare a report on the working of the committees of which they are member and circulate the same to other PIDs. The consolidated report in this regard shall be submitted to the governing board of the MIIs. Further, PIDs shall identify the important issues which may involve conflict of interest for the MII or may have significant impact on the market and report the same to SEBI, from time to time. e. Independent external persons in committees at MIIs: i. The independent external persons forming a part of committees shall be from amongst the persons of integrity, having a sound reputation and not having any conflict of interest. They shall be specialists in the field of work assigned to the committee; however they shall not be associated in any manner with the relevant MII and its members. ii. MIIs shall frame the guidelines for appointment, tenure, code of conduct, etc., of independent external persons. Extension of the tenure may be granted to independent external persons at the expiry of the tenure, subject to performance review in the manner prescribed by SEBI for PIDs. Further, the maximum tenure limit of Independent external persons in a committee of MII shall be at par with that of PIDs, as prescribed under Regulation 24(3) of the SECC regulations 2018. 8. On the aspect related to commencement of operations by a newly recognised Stock exchange/ Clearing Corporation, it has been decided that the recognised stock exchange after grant of recognition can commence trading operations with a minimum of 25 trading members, in place of earlier requirement of minimum of 50 trading members. Similarly, a newly recognised clearing corporation can now commence clearing and settlement operations with a minimum of 10 clearing members, in place of earlier requirement of minimum of 25 clearing members. 9. As stated in Regulation 52 (1) of SECC Regulations, 2018, SEBI circular no. CIR/MRD/DSA/33/2012 dated December 13, 2012 and circular no. SEBI/HO/MRD/DSA/CIR/P/2016/30 dated January 22, 2016 stand repealed with the issuance of this circular. Further, following circulars stand partially amended as under: a. Clause 2 3 of SEBI circular no. CIR/MRD/DMS/ 03 /2014 dated January 21, 2014 on functions and composition of IT strategy committee of depositories, stands rescinded. b. Clause 3 of SEBI circular no. SEBI/HO/DMS/CIR/P/2017/15 dated February 23, 2017 and Clause no. 2 (B) of SEBI circular no. CIR/CDMRD/DEICE/CIR/P/2017/77 dated July 11, 2017 providing for composition and functions of former committees of MIIs, stands rescinded. c. Clause 5 of SEBI circular no. CIR/MRD/DP/ 1 /2015 dated January 12, 2015 on Risk management policy at depositories may be read as under: The Depositories shall put in place mechanism to implement the Risk Management Framework through a Risk Management Committee which shall be headed by a Public Interest Director (PID). Further, the responsibilities of the committee and other requirements of the circular, as provided in the said circular shall continue to be applicable to depositories. d. In SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2016/103 dated September 27, 2016 , references to Risk management committee shall be replaced with Membership selection committee . 10. The MIIs shall submit a confirmation report to SEBI with regard to the formation and composition of the Committees listed out in the Annexure A and compliance with other norms prescribed in the circular, at the earliest but not later than three months from the date of this circular. 11. MIIs are directed to: a. take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations; b. bring the provisions of this circular to the notice of their members and also disseminate the same on their websites; and c. communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report. 12. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 , read with Section 10 of the Securities Contracts (Regulation) Act, 1956 and Section 19 of the Depositories Act, 1996 , to protect the interests of investors in securities market and to promote the development of, and to regulate the securities market. 13. This circular is available on SEBI website at www.sebi.gov.in at Legal Framework Circulars . Yours faithfully Bithin Mahanta Deputy General Manager Market Regulation Department Email: [email protected]