SEBI Board to Consider Clearing Corporation Ownership, PID Appointments, Close Auction Session
SEBI’s board is gearing up to approve a series of measures at its upcoming meeting under the leadership of newly-appointed Chairman Tuhin Kanta Pandey on March 24. These measures include ensuring the independence of clearing corporations, introducing a close auction session in the cash market, and outlining the appointment process for public interest directors (PIDs) and key personnel at market infrastructure institutions (MIIs).
Among the key decisions on the table is the extension of the advance fee collection period for research analysts from one quarter to a year, the implementation of a SIM-binding mechanism to prevent unauthorized transactions in trading and demat accounts, and the tightening of disclosure norms for REITs and InvITs, as per sources.
The board will also delve into SEBI’s expenditure and budget allocation for the upcoming financial year 2025-26, a crucial task following Pandey’s appointment earlier this month.
Clearing Corporations’ Independence
The board is expected to lay the groundwork for the dilution of the shareholding of the two stock exchanges – National Stock Exchange and BSE – in their respective clearing houses. Both the regulator and industry stakeholders agree on the necessity of ensuring the independence of clearing corporations (CCs) and diversifying their ownership, sources revealed.
While it is preferred that the shareholding of the exchange in the CC mirrors that of the exchange itself, SEBI is against exchanges holding no shares in CCs. Instead, SEBI is likely to establish minimum and maximum shareholding thresholds for exchanges in CCs. The divestment of exchanges’ shareholding in CCs is anticipated to be carried out through an “offer for sale” scheme, similar to the corporatization and demutualization scheme, according to a source familiar with the discussions.
PID Appointments
SEBI is also set to finalize a new framework for the appointment and reappointment of PIDs at MIIs. Of the two proposed options, the regulator is expected to uphold the existing process that does not necessitate shareholder approval. Additionally, the formation of a high-level appointment committee is unlikely as it could complicate the appointment process.
The regulator may streamline documentation requirements by adopting a two-stage process: shortlisting one of two candidates submitted by MIIs, followed by seeking detailed documents only for the final appointment. Moreover, existing PIDs will not be automatically eligible for reappointment, as the prerogative should lie with the MIIs’ governing board, as per another source.
Other Potential Reforms
The board may also endorse changes to the angel funds framework, allowing only accredited investors to become angel investors and easing AIF regulations. Furthermore, the definition of qualified institutional buyers (QIB) may be expanded to include accredited investors, and the cap of 200 investors for private placement offers may be removed.
SEBI could prescribe a cooling-off period for KMPs and directors of an MII before joining a competing MII, in consultation with the industry standards forum of MIIs. The regulator may also enhance and clarify the framework for ESG Rating Providers (ERP) to withdraw ratings and disclose the rating rationale. Furthermore, a revamp of the Business Responsibility and Sustainability Reporting standards to align with internationally recognized environmental, social, and governance norms may be on the cards.
The proposed changes to risk monitoring in equity derivatives, such as revised gross and net position limits for intraday and end-of-day trading, are unlikely to be addressed at this meeting due to the industry stakeholders’ diverging views on their potential impact.
The board’s meeting is scheduled for March 24, where these and other crucial decisions will be deliberated upon.
