On September 24, 2024, the Securities and Exchange Board of India (SEBI) issued a circular (SEBI/HO/MRD/POD-III/CIR/P/2024/127) addressing the performance evaluation of Market Infrastructure Institutions (MIIs). MIIs include stock exchanges, clearing corporations, and depositories. This circular aims to enhance transparency, accountability, and governance of MIIs by providing a structured framework for evaluating their performance based on defined criteria.
Key Highlights:
Regulatory Context The framework for evaluating MIIs is governed by Regulation 33(6) of the SECC Regulations, 2018 and Regulation 31(6) of the D&P Regulations, 2018. These regulations mandate that MIIs appoint an independent external agency to conduct periodic performance evaluations. SEBI’s move aims to introduce consistency across evaluations through a set of minimum standards, weightages, and key performance indicators (KPIs) that are both qualitative and quantitative.
Broad Evaluation Criteria SEBI has established a set of basic criteria for evaluating the performance of MIIs. The evaluation process will be overseen by an independent external agency, and the performance will be assessed based on the following parameters:
Criteria | Weightage |
Resilience in technology and processes in delivery of core functions | 40% |
Investor education and protection | 17% |
Efficient discharge of regulatory roles | 15% |
Compliance with regulatory norms | 10% |
Governance practices | 8% |
Adequacy of resources | 5% |
Fair access and information disclosure | 5% |
This framework will help ensure that MIIs maintain high operational and governance standards while safeguarding investor interests.
Rating Framework A rating framework has been developed to maintain consistency in assessments across different MIIs. This rating will reflect the judgment of the external agency based on the expected performance outcomes of MIIs.
Appointment of Independent External Agencies To ensure impartial evaluations, SEBI has laid out guidelines for the appointment of external agencies. MIIs must secure a No Objection Certificate (NOC) from SEBI before appointing an external agency, and the agency must demonstrate domain expertise in securities markets and MII operations. Furthermore, SEBI prohibits any conflict of interest between the agency and the MII being evaluated.
Evaluation Timelines
The first round of external evaluations will occur for the financial year 2024-25, with the evaluation report submitted by September 30, 2025.
Future evaluations will be conducted in three-year blocks, with reports submitted within six months of the end of the third financial year in each block.
Performance Evaluation of Key Management Personnel (KMPs) SEBI also emphasizes the importance of evaluating the performance of KMPs, including Managing Directors (MDs). A minimum of 50% of the MD's performance evaluation must be tied to critical operations and regulatory outcomes. The roles, responsibilities, and KPIs for each KMP must be clearly defined, with a performance management mechanism in place.
Conclusion
SEBI's circular is a significant step towards ensuring that MIIs maintain transparency, investor protection, and operational excellence. By introducing a standardized evaluation process, SEBI is enhancing the regulatory oversight of key institutions in the securities market, promoting robust governance, and aligning MIIs with global best practices.
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