Sebi panel tells Indian exchanges to bolster oversight, compliance

A panel set up by India’s capital market regulator wants exchanges, clearing houses and depositories to revamp their compliance and risk management structures to minimise governance lapses.

A committee headed by G. Mahalingam, a former central banker and a ex- whole time member at the Securities and Exchange Board of India (Sebi), recommended market infrastructure institutions (MII) should separate functions into three broad categories; critical operations; regulatory, compliance and risk management; and other functions such as business development.

Of these, the institutions should prioritise the first two, the panel said.

The recommendations come as India’s Central Bureau of Investigation is probing the world’s largest derivatives exchange by volume — the National Stock Exchange — for governance lapses.

The federal agency arrested Chitra Ramkrishna, the former chief executive officer of NSE after the market regulator passed an order in February implicating her for allegedly leaking confidential information and giving some brokers preferential access to the exchange’s trading system. The regulator is separately investigating outages and technical glitches at the exchange.

Earlier this year, Sebi also penalised NSE and BSE Ltd. for lax oversight of a brokerage firm Karvy Stock Broking.

“The committee considered that MIIs in pursuance of their business objectives, should not lose sight of their regulatory roles vested upon them as a first line regulator,” the panel said. “At the same time, the committee acknowledged that tightening of the norms should not deter innovation or cause unintended consequences for the MIIs.”

The committee further said at least two-third members of the board at the MIIs shall comprise of public interest directors to ensure greater independence.

“The role of the board of the MII and the senior management team should be clearly outlined through a set of guiding principles, especially focused on regulatory, compliance, risk and conduct related aspects,” the committee members said.

In order to enhance transparency, the MIIs should disclose the agenda and minutes of meetings of their board, keeping in mind their role as a ‘first-level regulator’. To begin with, agendas related to regulatory, compliance & risk management areas may be disclosed on the website of the MII, the committe said.

—Bloomberg