SEBI Mandates Cooling-Off Period For Directors Moving Between Competing Market Institutions
New Delhi: The Securities and Exchange Board of India (SEBI) has introduced stricter rules to improve governance at key market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations, and depositories. In a move aimed at preventing conflicts of interest and ensuring market integrity, the SEBI has made it mandatory for certain directors to observe a cooling-off period before joining a competing institution.
"Provided that the non-independent director on the governing board of the depository may be appointed in a recognised stock exchange or a recognised clearing corporation or another depository with the prior approval of the Board, only after a cooling-off period as may be specified by the governing board of such depository," it said.
The market regulator has amended the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, as well as the Depositories and Participants Regulations, 2018, to bring these changes into effect.
Under the new framework, a non-independent director who has served on the board of a recognised stock exchange or clearing corporation can only be appointed to the board of another competing institution -- such as a different exchange, clearing house, or depository -- after fulfilling two key conditions.
These include completing a cooling-off period, the duration of which will be decided by the governing board of the institution concerned and obtaining prior approval from the SEBI. The SEBI has also specified that a public interest director, after completing their term at a market infrastructure institution, can be appointed to another similar institution for an additional term of three years, but only with its approval.
The cooling-off requirement will apply specifically in cases where the individual is being appointed as a public interest director at a competing institution. These new measures are intended to ensure stronger oversight and ethical standards at institutions that play a critical role in the smooth functioning of India's financial markets.
The SEBI said the changes are part of its ongoing efforts to strengthen the governance framework of MIIs and to prevent potential conflicts that could arise from the movement of directors between competing entities.
The decision follows a board-level review conducted by the SEBI in March, which focused on the appointment process for key officials at stock exchanges and related market institutions. The introduction of a formal cooling-off period was one of the key recommendations from that review.
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