Sebi proposes automatic approval route for stock exchanges, depositories to ease compliance burden

SEBI has proposed an automatic approval route for stock exchanges and depositories to undertake core-linked activities and deploy funds without prior regulatory consent, aiming to ease compliance burdens and improve the ease of doing business for market infrastructure institutions. Public comments a...

The Securities and Exchange Board of India (SEBI) has proposed allowing stock exchanges and depositories to undertake activities linked to their core functions and deploy funds without seeking prior regulatory approval, subject to financial limits and governance safeguards.

The proposal seeks to reduce compliance requirements for market infrastructure institutions (MIIs) and improve ease of doing business. SEBI has invited public comments on the proposed framework until November 12.

Under the proposed framework, MIIs, excluding recognised clearing corporations, would be allowed to undertake eligible activities through an automatic approval route, subject to specified financial thresholds and governance conditions.

The framework proposes two routes for such activities:

* Route A would cover activities undertaken in accordance with SEBI's directions, certain transfers of shares within an MII group, and fund deployment by an operating subsidiary using only its own operational earnings.

* Route B would cover activities similar to those undertaken by an MII through an entity regulated by another financial sector regulator in India, provided SEBI has previously approved the activity and its nature remains unchanged.

SEBI has proposed limiting the aggregate funds deployed under the automatic route in a financial year to the lower of 5 per cent of the MII's net worth as of March 31 of the preceding financial year or the minimum net worth requirement prescribed by the regulator.

The proposal also lays down governance safeguards. Each new activity or fund deployment would require prior approval from the MII's governing board. Institutions would also need measures to prevent conflicts of interest and ensure that investee companies, their directors and shareholders meet fit-and-proper criteria.

MIIs would be required to establish board-approved standard operating procedures and submit half-yearly reports to SEBI detailing activities undertaken under the automatic route within 30 days of the end of each half-year.

Currently, MIIs generally require SEBI's prior approval for activities involving fund deployment or otherwise, except for treasury investments made under a board-approved investment policy.

The regulator said the existing framework applies the same approval requirement regardless of the size, nature or risk of an activity, adding to compliance costs even for small investments directly supporting market operations.