SEBI/HO/MRD/POD - III/CIR/P/2024/127

guidelines · 1992 · State unknown

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Parent: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (7c4c1f5343adab106c3a94cafc08a5ecf5957ae7)

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CIRCULAR SEBI/HO/MRD/POD - III/CIR/P/2024/127 September 24, 2024 To, All Recognized Stock Exchanges All Recognized Clearing Corporations All Depositories Dear Sir/ Madam, Sub: Parameters for Performance Evaluation of Market Infrastructure Institutions Regulation 33(6) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (hereafter referred to as "SECC Regulations, 2018") and Regulation 31(6) of the SEBI (Depositories and Participant Regulations, 2018 (hereafter referred to as "D&P Regulations, 2018") states that every recognised stock exchange , recognised clearing corporation and depository (collectively referred as Market Infrastructure Institutions (MIIs)) shall appoint an independent external agency to evaluate its performance and the performance of its statutory committees within such periodicity and in such a manner as may be specified by the Board . In order to bring consistency and uniformity with respect to evaluations to be done by the external agency , it was felt that basic minimum standards and principles should be developed along with weightages . Accordingly, the matter was discussed at the Industry Standards Forum (ISF) of MIIs where the broad criteria, the weightage for each criterion, sub-parameters under each criterion, etc. were deliberated. For each sub -parameter, sample Key Performance Indicators (KPIs) , both quantitative and qualitative in nature, were identified by SEBI in consultation with the ISF. Based on the deliberations at the ISF of MIIs and subsequent internal deliberations , the broad framework with basic minimum criteria for independent external evaluation of performance of MIIs has been approved by the Board in its meeting held on June 27, 2024. The minimum criteria for the independen

Rule TOC

5 · Rating Framework

5 · 1. In order to ensure consistency in the manner of assessment and outcomes across similar MIIs, compare performance of such MIIs and monitor trends over time, a rating framework has been developed which would be assigned after evaluation of the MIIs. The rating would reflect the Independent External Agency's judgment on the performance of the MII in respect of expected outcomes. The rating framework is provided at Annexure-B .

6 · 1. The Independent External Agency shall be appointed with prior No Objection Certificate (NOC) from SEBI and on such terms and conditions, including fees, timelines, etc. as may be approved by the Governing Board of the MII .

6 · 2. The Independent External Agency shall have requisite domain knowledge, experience and expertise on matters concerning the securities market and the functioning of the MII.

6 · 3. MII shall ensure that there is no conflict of interest in the appointment of the Independent External Agency and the Agency had not been employed/hired by the MII for the evaluation period and till submission of the report .

7 · Timelines for External Evaluation

7 · 1. The independent external evaluation shall take place once in three years for each MII. In this regard, the following shall be ensured:

8 · 1. Clause (k) of Part A under Schedule-II of the SECC Regulations, 2018 on Code of Conduct for Stock Exchanges and Clearing Corporations , inter alia , state that

8 · 2. Further Clause u(iv) of Part B under Schedule – II of the SECC Regulations, 2018 on Code of Conduct for Governing Board , inter alia , states that

8 · 3. Above provisions require MIIs to clearly define the roles & responsibilities and the Key Performance Indicators (KPIs) of each Key Management Personnel (KMP) and have performance management mechanisms for their evaluation. Further, these KPIs have to inculcate regulatory, risk management and compliance outcomes .

8 · 4. In order to effectively reflect the efforts of the Managing Director (MD) and KMPs towards outcomes of various functions under Verticals 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances) , MIIs shall ensure that their internal performance evaluation metrics have allocated sufficient weightage for these outcomes.

8 · 5. The performance evaluation of MD should provide at least 50% weightage towards Verticals 1 and 2 related outcomes.

8 · 6. The performance evaluation of MD and KMPs shall include the minimum criteria as specified for the MIIs at Annexure-A. However, for KMPs the criteria and corresponding weightages may be adjusted depending upon the specific roles and responsibilities assigned to such KMPs.

10 · The MIIs are directed to:

10 · 1.take necessary steps and put in place necessary systems for the implementation of the above;

10 · 2.make necessary amendments to the relevant bye-laws, rules and regulations, wherever applicable, for the implementation of the above; and

10 · 3.bring the provisions of this circular to the notice of market participants (including investors) and also disseminate the same on their website.

11 · This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 read with Regulation

51 · of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, Section 26(3) of the Depositories Act, 1996 and Regulation 97 of Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

12 · This circular is available on SEBI website at www.sebi.gov.in .