SEBI’s New Proposals: What They Mean for Stock Market Governance
It’s time for a closer look at the recent move by SEBI, India’s market regulator, which rolled out new proposals on Thursday. These suggestions aim to improve how public interest directors (PIDs) are appointed on stock exchanges, clearing corporations, and depositories. The primary goal? To enhance shareholder participation and make the process more transparent and efficient.
Changes in Process and Easier Documentation for PIDs
One of the standout features of these proposals is the effort to simplify the paperwork for PIDs. The new guidelines suggest that the documentation requirements will be eased, making it simpler for qualified individuals to be considered for PID roles.
In addition to ease of documentation, SEBI proposes that PIDs will receive a fixed stipend, along with the sitting fees they currently get for attending meetings. Another significant change includes reducing the cooling-off period for their appointment.
Importance of PIDs in Market Infrastructure
The role of PIDs, as highlighted by SEBI, is crucial for enhancing corporate integrity and governance in market infrastructure institutions (MIIs). PIDs play an essential role in balancing the interests of MII management and shareholders. More importantly, they ensure that MIIs maintain the safety, efficiency, and integrity of the market for all participants.
PIDs ensure that while pursuing business objectives, MIIs do not lose sight of their responsibilities as public utility infrastructure institutions,” SEBI stressed in its consultation paper.
How Will the Appointment Process Change?
Under the existing system, the SEBI approves PIDs who then get appointed or reappointed to the governing board of an MII. SEBI is considering an alternate process where, after receiving names from MIIs, it would examine the applications and grant a No Objection Certificate (NOC). Following this, MIIs would need to take these names to their shareholders for approval.
Once shareholder approval is secured, the application will return to SEBI for the final nod. “If suitable candidates are not found acceptable to shareholders after two rounds of the above exercise by MIIs, SEBI shall appoint the PID,” SEBI clarified in its paper.
Strengthening Shareholder Involvement
In the current regulatory setup, shareholders don’t have much oversight on the functioning of the MII board. This new process aims to give shareholders a bigger say, especially in decisions impacting shareholder wealth.
Under these proposals, every PID in MIIs, in addition to sitting fees and meeting expenses, could receive a fixed annual remuneration of up to Rs 30 lakh.
Also, the cooling-off period of one year will apply only if a PID plans to join or associate with a competitor MII.
Seeking Public Feedback
SEBI is keen on gathering public comments on whether to retain the current documentation process or to adopt a two-stage process for shortlisting PIDs at the time of appointment. The deadline for public feedback is September 12.
With these proposed changes, SEBI aims to streamline the process and ensure greater transparency and efficiency in the appointment of PIDs. The new guidelines promise a better framework for PIDs, making it easier for them to focus on enhancing corporate governance and shareholder involvement in market infrastructure institutions.
Stay tuned for further updates on this developing story.
