Stock exchanges and other market infrastructure institutions (MIIs)—considered the backbone of the stock market ecosystem—will soon be tested on eight broad parameters by an independent reviewer. Based on how they stack up, a rating could be assigned to them, which will help the market regulator Securities and Exchange Board of India (Sebi) assess their performance and suggest measures to further strengthen their governance mechanism, if required.
Besides stock exchanges, other MIIs include depositories and clearing corporations. The evaluation will include parameters such as their activeness as first-level regulators, efforts to bring down compliance costs, reasonability of fees, and information sharing with Sebi, along with their core operations.
The MIIs’ resilience in technology, such as supervisory mechanisms and internal risk management frameworks, along with their core functions, will have the highest weightage in the rating at 40 per cent.
MIIs’ function as an independent first-level regulator for their participants and sharing of alerts or information with Sebi will be given 15 per cent weight in the evaluation, followed by measures for investor protection at 10 per cent, reasonability of fees, and mechanisms to reduce compliance costs with 5 per cent weight—as per the board agenda documents accessed by Business Standard.
“This will enable Sebi to compare the performance of the MIIs, based on their nature of activity, and monitor trends over time,” said Sebi in the board agenda documents.
The evaluation will be carried out by an external agency to be appointed by the MIIs. However, Sebi will take steps to ensure the independence of the agency.
The market regulator had approved the broader norms for external evaluation for the MIIs in its board meeting held on June 27.
The market regulator, in consultation with the Industry Standards Forum (ISF) for MIIs, has decided on this evaluation mechanism. Such an external evaluation will take place once every three years, and the first assessment will be done within 12 months of the implementation of the framework.
For each sub-parameter, sample key performance indicators, both quantitative and qualitative in nature, have been identified by Sebi in consultation with the pilot ISF. Weightages have been assigned to each sub-parameter based on their importance.
“The parameters for external evaluation of statutory committees of MIIs are currently under deliberation,” noted Sebi.
The regulator has said based on the learnings and feedback, the evaluation parameters can be revised from time to time.
First Published: Jul 16 2024 | 6:15 PM IST
