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Sebi to tweak 'fit & proper' regime for bourses, clearing corporations

By Khushboo Tiwari
July 20, 2023 10:20 IST
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The Securities and Exchange Board of India (Sebi) is mulling changes to the 'fit & proper' criteria for market infrastructure institutions (MIIs), such as stock exchanges, in a bid to segregate the role of an individual from the entity, said sources.


Photograph: Shailesh Andrade/Reuters

Under the current framework, wrongdoing by senior personnel could lead to a debarment of the MIIs such as stock exchanges, depository participants and clearing members—with quite a few such instances in the past.

Additionally, Sebi is also mulling to introduce a clause through which any order passed against an MII will not affect their operations, unless it is specifically mentioned so in the order.


The fit & proper criteria helps decide if an entity and individual is eligible to be a shareholder of an MII given their importance in the market ecosystem.

Individuals have to mee the fit & proper norms for taking up key roles at MIIs.

Some of the parameters include record of fairness, financial integrity, no conviction in any court for any offence, or any other order like that of restraining or debarment.

Sources said the market regulator is planning to amend certain clauses in regulations such as the Stock Exchanges and Clearing Corporations (SECC) and Depositories and Participants (DP), specifying the fit and proper criteria for the individuals such as shareholders of MIIs, directors and key management personnel (KMP).

“The new clauses in the fit and proper person definitions may be structured in a way to bring more clarity regarding the applicability of regulations on the entities when concerns arise on the suitability of the individuals,” said another source.

Further, if an order leading to disqualification is passed against the directors, KMPs or shareholders, it may have a bearing on the fit and proper status of the MII.

As the MIIs are public utility infrastructure service providers, Sebi does not want their operations to be hindered, the source added.

Sources said that the markets regulator had placed the proposal before the board during the meeting held on June 28.

Under the new proposal, on disqualification of a KMP, the stock exchange or the clearing corporation will have to replace the person within 30 days, failing which the fit and proper criteria could get invoked against the MII as well.

Experts said that the need for such delinking for MIIs has been felt necessary after the alleged co-location case at the National Stock Exchange (NSE) wherein former heads Chitra Ramkrishna and Ravi Narain are under prosecution.

A similar change had been introduced for intermediaries in November 2021 through an amendment delinking the disqualification of a group entity or a person from the fit and proper status of the intermediary.

However, the disqualified person would have to be replaced within 30 days and the person divests their stake within six months.

The proposal for the change is also being considered at a time when certain stock brokers have challenged an amendment related to fit and proper criteria concerning them before the Bombay high court.

Sebi has stated that it will not insist on compliance of the notices issued in the matter till August 2.

In November 2021, the markets regulator had tightened the definitions of fit and proper for stock brokers and their directors which disqualified them if a charge sheet was filed against them.

Filling in the gaps

  • At present, an order on a key personnel or a shareholder may have a bearing on MIIs’ fit and proper status
  • Sebi is planning to shield MIIs from any possible debarment of key employees by delinking fit & proper norms
  • Regulator plans to introduce a clause wherein an order against MIIs will not impact operations unless specifically mentioned
  • Regulator may amend SECC and DP regulations, say sources
  •  MIIs are crucial for markets, efforts to avoid hindrance to operations and bring clarity
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Khushboo Tiwari
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