On September 20, 2024, the Securities and Exchange Board of India (SEBI) issued a significant circular aimed at refining the framework for handling technical glitches within Market Infrastructure Institutions (MIIs). This move, encapsulated in circular SEBI/HO/MRD/TPD-1/P/CIR/2024/124, is part of SEBI's ongoing commitment to promote ease of doing business while ensuring the reliability and efficiency of the securities market.
Background and Context
The circular builds on existing guidelines laid out in the SEBI Master Circulars for Stock Exchanges, Clearing Corporations, and Depositories, which were established in late 2023. These guidelines originally mandated the imposition of "Financial Disincentives" on MIIs, as well as individual leaders—specifically, the Managing Director (MD) and Chief Technology Officer (CTO)—when technical glitches occurred. This measure aimed to hold responsible parties accountable for failures in operational management.
However, the feedback from various stakeholders, including governance committees and MIIs themselves, highlighted concerns regarding the practical implications of holding individuals liable, given the complex, system-driven nature of MII operations. The circular addresses these concerns, reshaping the accountability framework.
Key Changes:
1. Focus on MIIs: The most notable change is the decision to limit the imposition of financial disincentives solely to the MIIs rather than individuals like the MD or CTO. This shift recognizes that accountability for technical glitches often lies within the broader system rather than individual actions.
2. Opportunity for Representation: Before any financial disincentives are enforced, SEBI will now provide MIIs with the opportunity to submit their perspectives on the incident. This approach adds a layer of fairness and transparency, allowing MIIs to explain circumstances surrounding the glitches.
3. Modified Reporting Requirements: MIIs are now required to submit compliance reports detailing financial disincentives paid within 90 days of a technical disruption. They must also disclose these details on their websites and in annual reports, thus enhancing accountability and transparency to investors.
4. Internal Accountability: MIIs are directed to conduct internal reviews following technical glitches to assess individual accountability. This encourages organizations to scrutinize their operations and hold staff accountable where necessary, while also preserving SEBI's right to take enforcement actions if warranted.
5. Pre-defined Thresholds: The circular emphasizes the need for MIIs to establish predefined thresholds for system downtimes. If disruptions exceed these thresholds, financial disincentives will automatically trigger, incentivizing MIIs to maintain robust systems.
The revised framework signifies a balanced approach that fosters a conducive environment for MIIs to operate effectively while ensuring that investors’ interests are safeguarded.
Conclusion
This SEBI circular represents a thoughtful evolution in the regulatory landscape for MIIs in India. By refining the accountability structure and focusing on organizational rather than individual responsibilities, SEBI not only addresses the concerns raised by various stakeholders but also reinforces its commitment to the ongoing enhancement of governance and operational standards in the securities market.
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