Provisions Relating To Strengthening Governance Of Market Infrastructure Institutions (MIIs)

Introduction

On 12 December 2025, the Securities and Exchange Board of India issued a circular on strengthening the governance framework of Market Infrastructure Institutions, namely stock exchanges, clearing corporations and depositories. The circular revises regulatory expectations concerning senior management roles, reporting structures and board oversight within MIIs. Its objective is to improve accountability, regulatory compliance and operational resilience in institutions that perform systemically important market functions.

Explanation

There are many ways Market Infrastructure Institutions (MIIs) can be viewed within the Securities Markets, however, one way to define MIIs is by how MIIs are viewed as providing trade execution, clearing, settlement and record keeping functions in the Securities Market. Due to MIIs having systemic risk for the securities market, SEBI has required all MIIs to adhere to a higher set of standards for governance. The December 2025 Circular was built upon this existing structure by modifying some of the provisions listed in the SEBI (Stock Exchanges and Clearing Corporations) Regulations and SEBI (Depositories and Participants) Regulations. The Circular is intended to refine the internal governance mechanism used by MIIs and help establish the responsibilities associated with the critical functions associated with each MII and how these responsibilities can be specifically identified and traced to the functions of the MII.

The Role of the Managing Director

According to the Circular, the Managing Director will still have the overall authority over the operation of their MII including establishing the strategic direction of the MII, monitoring the regulatory compliance of the MII and leading interactions with SEBI. However, the Circular also delineates the responsibility of the Executive Directors associated with their respective functional areas. The intention of this distinction is to help reduce the concentration of operational control with one person and ensure that the critical functions of MIIs have dedicated executive attention. The MD has the expectation to interface and coordinate the work being done in each of the verticals of the MII but will remain responsible to the Governing Board and SEBI.

Appointment and Responsibilities of Executive Directors

MIIs are required to appoint Executive Directors (EDs) through an open, transparent and merit-based process approved by the Governing Board. Each ED must be assigned a clearly defined functional vertical. Broadly, the circular envisages two verticals:

• a vertical dealing with core operational, technology and systems-related functions; and
• a vertical dealing with regulatory, compliance, risk management and investor grievance functions.

Reporting Lines of Key Management Personnel

Officers responsible for technology and systems, including the Chief Technology Officer and Chief Information Security Officer, are required to report to the ED overseeing the operational and technology vertical. Officers responsible for regulatory compliance and risk, including the Compliance Officer and Chief Risk Officer, must report to the ED handling regulatory and risk functions. This alignment is designed to strengthen internal checks and ensure that risk and compliance considerations are not subordinated to operational priorities.

According to the Circular, the Executive Directors are expected to submit reports to the Governing Board on a regular basis regarding issues that relate to their respective domains. Reports can be escalated if deemed necessary due to exceptional circumstances. In addition, EDs can escalate material issues directly to SEBI if these issues require immediate regulatory action. The Circular identifies a need for a mechanism for the escalation of systemic risk, compliance failures, or disruptions in operations, thereby preventing delays experienced by EDs because of internal hierarchies.

Board oversight and governance

The process for appointment, reappointment, and removal would typically be carried out through the nomination and remuneration committee or any other committee which is created by the board. The recruitment of executive directors onto the governing board may occur under circumstances which require contributions to the board from the executive level related to market conditions and regulatory matters. The objective for doing this is to ensure that the board is not just acting as a supervisory body but is also actively engaged with the management of the majority of critical functions in the marketplace.

MIIs should also ensure that the management of technology and cyber security functions is treated independently from the daily operations of the company as well as other functions in support of the day-to-day operations of the MIIs. Therefore, it should be reported directly to an executive director assigned to technology and cyber security and is subject to review by the board on a periodic basis. MIIs must also ensure that risk management and compliance are not influenced by business activities; therefore, they should be reported to a designated executive director and reviewed by the board on a regular basis. The management of investor grievance redress is also considered a regulatory function and requires senior-level attention.

Implementation

Implementation of the circular will require MIIs to undertake internal restructuring. Key steps include revising organisational charts, updating role charters, modifying board-approved policies and instituting standardised reporting mechanisms. MIIs may also need to initiate recruitment processes where Executive Director positions are vacant or where existing roles do not align with the prescribed verticals. While the circular does not fundamentally alter the external interface of MIIs with market participants, its internal impact is expected to be significant in terms of governance processes and documentation.

Conclusion

The December 2025 circular seeks to align internal governance structures with the critical public functions performed by MIIs. Effective implementation will depend on timely restructuring by MIIs and sustained board engagement, with the longer-term objective of enhancing market stability and regulatory confidence.