SEBI Mulls Looser Rules for Board Appointments at Exchanges and Depositories

The Securities and Exchange Board of India (SEBI) has put out a fresh consultation paper that, frankly, reads like a breath of fresh air for the country’s market‑infrastructure institutions (MIIs). At its heart, the regulator wants to relax the stiff‑corded rules that currently keep many qualified professionals away from boardrooms at stock exchanges, clearing houses and depositories.

Why the fuss? Under today’s framework, if you sit on the board of a broker, a clearing member, or even an associate of such entities, you’re automatically deemed ineligible to become a director of an MII. The same logic extends to directors linked with depository participants. In practice, this creates a maze of “Chinese walls” that big financial conglomerates struggle to navigate – the very walls that were intended to prevent conflicts of interest can now choke the flow of fresh expertise.

SEBI argues that the rule‑book is a tad too restrictive for large groups that house multiple subsidiaries, each operating in its own silo. “A director of a company in a conglomerate should not become ineligible just because the holding firm has a separate subsidiary in the clearing or depository business,” the regulator wrote, pointing out that the current language unintentionally bars capable candidates from serving as Public Interest Directors (PIDs).

To untangle this knot, the regulator proposes extending an exemption that already exists for directors of public‑sector banks and financial institutions. In the new draft, any company with a “well‑diversified” shareholding structure could enjoy the same carve‑out. The definition is fairly straightforward: no single shareholder – other than a public‑sector entity – should own, directly or indirectly, 10% or more of the voting power, either alone or in concert with others.

What does this mean for the market? In theory, a broader talent pool could flow into the governance of MIIs, bringing in fresh perspectives and specialised knowledge that have been hard to source under the old rules. SEBI hopes this will boost the overall quality of board deliberations and, by extension, strengthen market integrity.

But the regulator’s overhaul doesn’t stop at board eligibility. In the same paper, SEBI sketches a standardized framework for four critical senior‑management roles: Chief Technology Officer (CTO), Chief Information Security Officer (CISO), Compliance Officer (CO) and Chief Risk & Information Officer (CRiO). Until now, each MII has set its own bar for qualifications, experience and certifications, leading to a patchwork of standards that can be confusing – and risky.

Under the proposed model, the governing board of each MII would have to approve a Standard Operating Procedure (SOP) for each of these positions. Inputs would be drawn from relevant statutory committees – the Standing Committee on Technology for the CTO and CISO, the Regulatory Oversight Committee for the Compliance Officer, and the Risk Management Committee for the CRiO. The idea is to codify what “good enough” looks like, ensuring that whoever steps into these roles brings the right mix of technical know‑how, regulatory savvy and risk‑management chops.

Another practical tweak: SEBI wants any vacancy in these key roles to be filled within three months. If a gap is anticipated, the institution would have to plan ahead, perhaps by grooming a deputy. In fact, the regulator is also inviting comments on whether MIIs should be mandated to appoint deputies for each of these positions – a safeguard that could keep the ship steady even if a senior executive departs unexpectedly.

All of these proposals are open for public comment until September 30, 2026. SEBI is essentially asking the industry, academicians and other stakeholders to weigh in on whether the suggested relaxations strike the right balance between preventing conflicts of interest and unlocking a richer talent pool.

Whether these changes will reshape the governance landscape of India’s capital‑market infrastructure remains to be seen. One thing is clear, though: SEBI is trying to move away from a one‑size‑fits‑all approach and toward a more nuanced, talent‑friendly regime. If successful, we could see fresher ideas, stronger oversight and, hopefully, a more resilient market overall.