The Securities and Exchange Board of India (Sebi) on September 20, 2024 relaxed the rules on financial penalties on market infrastructure institutions (MIIs), such as stock exchanges, clearing corporations, and depositories, and their top officials in the event of any technical glitches.
The new guidelines do away with penalties on top officials of MIIs, such as its managing director and chief technology officer (CTO). The move is aimed at improving the ease of doing business of stock market institutions. The new framework was introduced following recommendations from various committees and MIIs to promote a smoother business environment for these institutions, Sebi said in a recent circular.
What Has Changed?
According to the circular, Sebi will now limit financial penalties on MIIs only in the case of technical glitches. Additionally, MIIs, such as stock exchanges, clearing corporations, and depositories will have the opportunity to explain the reasons behind any technical issues before the penalties are applied.
Previously, MIIs and their managing directors and CTOs faced automatic financial penalties for technical glitches if certain criteria were not met. Sebi said that MIIs’ operations are increasingly system-driven. They rely on a complex array of IT systems, both software and hardware, that depend on various vendors and service providers. MIIs must submit a report within 90 days of any disruption, detailing financial penalties paid. They are required to disclose this information on their websites, annual reports, and to investors, if listed.
“Further, the test for ascertaining any individual responsibility for a technical glitch would entail ascertaining if there has been any act of omission or commission, including if a managing director or CTO did or did not ensure adequate oversight or resources or checks and balances to prevent such glitch reasonably, and by definition such a test would require application of mind and assessment,” Sebi said.
“MIIs shall carry out internal examinations pertaining to technical glitches to ascertain individual accountability and take appropriate action, including suitable recording and reckoning, in the performance appraisal of those individuals,” Sebi added. Sebi further said that it reserved the right to take further action against individuals if necessary.
