SEBI Releases parameters for external evaluation of statutory committee of Stock Exchanges and other MIIs

Introduction

In a recent circular dated 30th January 2025, the Securities and Exchange Board of India has released a circular pertaining to guidelines for the evaluation of performance of Statutory Committees of Market Infrastructure Institutions (“MIIs”) and mechanism for internal evaluation of performance of MIIs and other statutory committees.

Under these guidelines, the MIIs comprising stock exchanges, clearing corporations and depositories have been mandated to appoint an independent and external agency for evaluation of the performance and functioning of statutory committees.

Analysis

The SEBI has mandated the MIIs to set up various statutory committees such as a nomination and remuneration committee, standing committee on technology, risk management committee and investment committee along with issuing guidelines on the functioning of these committees and their needs which need to be monitored and evaluated both by an external agency as well as internal mechanisms.

The external agencies shall be responsible for conducting the evaluations on the basis of three main parameters and each of them shall be assigned different weightages. Moreover, as per the circular, the roles, responsibilities and duties of these statutory committees shall be assigned a weightage of 40 percent and effectiveness of meetings of these committees shall be 30 percent and the governance aspect of statutory committees shall be assigned a weighting of 30 percent. The appointment of the external agency is also subject to approval by the Securities and Exchange Board of India which shall consider factors like timelines, fee payments etc. and grant a no – objection certificate.

Under the above criteria, the evaluation will consider sub – parameters and under this sub – parameter, performance indicators shall also be assigned. The MIIs have also been instructed to carry out an internal assessment of their own performance and performance of their statutory committees in a manner already specified by the SEBI. Furthermore, for each of the sub – parameters a sample Key Performance Indicator (“KPI”) which shall be both qualitative and quantitative shall be taken into consideration. Moreover, they shall also develop a set criteria for comprehensive evaluation which shall be submitted to the Governing Board of the MII within a period of 3 – months at the end of each financial year starting with the FY 2024 – 2025 and be submitted to the SEBI by the end of September 30, 2025.

Conclusion

The above notification released by SEBI is an effective step towards increasing transparency, effective governance and control over the stock exchanges and Market Infrastructure Institutions (MIIs). Through introduction of these parameters and mechanisms for checking the internal and external governance and functions of these entities, the SEBI can also manage the stability and effectiveness of the financial markets and enhance investor confidence in the long run.

The notification circular by SEBI can be accessed here.