Sebi on Tuesday proposed an overhaul of the governance framework of market infrastructure institutions including stock exchanges by mandating the appointment of two executive directors (EDs) to bolster operational oversight.

In a consultation paper, Sebi said the move is aimed at ensuring MIIs (market infrastructure institutions) -- which have witnessed sharp growth in investor base, revenue, and market activity -- place public interest, compliance, and systemic stability above commercial considerations.

The two EDs, to be designated as KMPs (key managerial personnels), would head "critical operations" and "regulatory, compliance, risk management, and investor grievances", respectively, and be inducted into the MII's governing board alongside the Managing Director (MD), Sebi said.

Currently, the MD holds overarching authority across all verticals, but Sebi noted that functions related to technology, risk management and investor protection need empowered leadership to prevent governance failures.

The EDs are expected to match the MD in stature and will report to the board and Sebi on issues in their respective verticals, it added.

The regulator also recommended strengthening the roles of other KMPs, including Chief Technology Officer, Chief Information Security Officer, Chief Risk Officer, and Compliance Officer to ensure robust internal systems.

Additionally, Sebi has proposed limiting the external directorships of MDs and EDs. The MD may serve as a non-executive director only on the board of a Section 8 company or an unlisted government entity not engaged in commercial activity.

However, the executive directors will be barred from directorships in any company except MII subsidiaries, as per the consultation paper.

The regulator said these measures were necessary in light of the growing criticality and complexity of MIIs, as evidenced by rising demat accounts, increased trading volumes, and swelling profits.

Sebi also highlighted sharp increase in technology expenditure and dividend payouts, indicating both operational dependence on tech and significant commercial success.

Public comments on the three proposals have been invited until July 15. Sebi indicated that amendments to SECC and D&P regulations, 2018, will be considered following stakeholder feedback.

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