Strengthening Market Infrastructure Institutions’ Oversight: SEBI’s Circular on Key Managerial Personnel and Public Interest Directors

Introduction

On May 26, 2025, SEBI published a circular with a view to strengthening the governance framework of Market Infrastructure Institutions (“MIIs”) such as stock exchanges, clearing corporations, and depositories[1]. The circular provides elaborate procedures for the appointment, re-appointment, termination, and resignation of key managerial personnel (“KMPs”), introduces a cooling-off period for joining competing MIIs by KMPs, and stipulates disclosure requirements relating to the non-reappointment of Public Interest Directors (“PIDs”).

Understanding The Circular

Subject of the Circular

The circular issued by SEBI to all Recognized Stock Exchanges, Clearing Corporations, and Depositories covers:

• The process for appointment, re-appointment, termination, or resignation of specific KMPs of MIIs.
• The cooling-off period for KMPs of an MII joining a competing MII.
• A new provision relating to the re-appointment of PIDs.

Process Related to KMPs of an MII

To enhance governance at MIIs (which include stock exchanges, clearing corporations, and depositories), SEBI emphasized the stature and independence of KMPs in critical operational areas such as compliance, risk management, technology, and information security. The key KMPs under focus are the Compliance Officer (“CO”), Chief Risk Officer (“CRO”), Chief Technology Officer (“CTO”), and Chief Information Security Officer (“CISO”).

The MII’s Governing Board is responsible for ensuring that operations under Verticals 1 (compliance) and 2 (risk and technology) prioritize public interest over commercial interests typically covered under Vertical 3. A capable Managing Director must be supported by suitably qualified and independent KMPs in Verticals 1 and 2 to ensure the institution fulfills its public utility function and regulatory role.

Appointment Process

• An independent external agency must be appointed by the MII to identify and recommend suitable candidates for the roles of CO, CRO, CTO, and CISO.
• These recommendations will be submitted to the MII’s Nomination and Remuneration Committee (NRC).
• The NRC, after consulting with the MII’s management, will forward its recommendation to the Governing Board.
• The Governing Board shall take the final decision regarding such appointments.

Re-appointment, Termination, or Resignation

• The NRC will evaluate all such cases for the designated KMPs after consulting the MII’s management and forward its recommendation to the Governing Board.
• The Governing Board will take the final decision on re-appointment, termination, or acceptance of resignation.
• No KMP shall be terminated without being given a reasonable opportunity of being heard by the Governing Board.
• These procedures apply to all such decisions made on or after the implementation date of this circular.
• For KMPs other than the MD, CO, CRO, CTO, and CISO, the existing NRC procedures shall continue to apply. However, the same process may be adopted by MIIs for all the KMPs if so desired.

Cooling-off Period for KMPs Joining a Competing MII

SEBI has amended the existing framework in response to stakeholders’ comments, SMAC recommendations, and Board approval.

• The mandatory one-year cooling-off period for PIDs under the SECC Regulations, 2018, and D&P Regulations, 2018 has been amended.
• According to Gazette Notifications of April 30, 2025, the cooling-off period for PIDs and Non-Independent Directors shall now be as specified by the Governing Board of the respective MII.
• These amendments shall take effect from the 90th day from their date of publication in the Official Gazette.
• The Governing Board of each MII is now responsible for prescribing the cooling-off period for KMPs (including the MD) before they can join a competing MII as a KMP.
• The term “competing MII” shall be interpreted in accordance with SECC and D&P Regulations, referring to other recognized stock exchanges, clearing corporations, or depositories.

Re-appointment of Public Interest Directors (PIDs)

• If an existing PID is not re-appointed after completion of their first term, the Governing Board must record the rationale for the decision.
• The reason must also be communicated to SEBI.

Applicability and Compliance

• The circular will come into effect from the 90th day after issuance (i.e., from August 24, 2025).
• All MIIs are instructed to:
  – Take necessary steps and implement systems for compliance with the circular.
  – Amend relevant bye-laws, rules, and regulations where required to enable its implementation.

Conclusion

SEBI’s circular marks a deliberate shift toward enhancing transparency, accountability, and independence in the functioning of MIIs. By formalizing processes for KMP transitions and introducing flexible yet Board-regulated cooling-off provisions, it balances institutional autonomy with regulatory oversight. The mandated rationale for PID non-reappointments further reflects a move toward greater governance disclosure. Collectively, these measures signal SEBI’s intent to embed public interest safeguards deeper into the operational and structural core of critical market institutions.