The Securities and Exchange Board of India (Sebi) introduced a major framework on October 14, 2024 to control the ownership of shares by market infrastructure institutions (MIIs), such as depositories, clearing organisations and stock exchanges. It is aimed at improving adherence to ownership restrictions, public shareholding requirements, and suitable shareholder criteria.
All MIIs, listed and unlisted, will now be required to comply with Sebi’s Listing Obligations and Disclosure Requirements (LODR) by disclosing their ownership patterns on a quarterly basis under this new framework. It is anticipated that this disclosure would increase ownership structure transparency and give stakeholders crucial information about shareholding dynamics.
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Each MII will also have to appoint a designated depository (DD) to monitor compliance with Sebi’s regulations on shareholding limits. The DD must not be associated with the MII to ensure impartial oversight. The DD will notify the MII and relevant stock exchange whenever the combined shareholding of foreign investors exceeds the 49 per cent threshold, facilitating prompt corrective actions.
The latest regulations from Sebi place severe limitations on trading members (TMs), too, thus guaranteeing that their combined ownership, together with their affiliates and agents does not exceed 49 per cent of an MII’s stock. Any acquisitions that increases the total ownership to 45 per cent will need to be approved in advance by the relevant stock market.
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Further, stock exchanges will be required to control at least 51 per cent of clearing corporations. Also any exchange that owns more than 15 per cent of a single clearing entity is subject to limitations.
Another crucial element of this framework is the enforcement of the fit and proper criteria for shareholders who own 2 per cent or more of an MII’s equity. MIIs must ensure compliance with these criteria and report any non-compliance to Sebi on a quarterly basis. In instances where breaches occur, the DD will take action by freezing excess shares and disabling voting rights for those shareholders.
On January 12, 2025, the framework will go into effect, providing MIIs with 90 days to set up the necessary compliance processes.
