SEBI Depositories Amendment – Cooling-Off Period for Non-Independent Directors

On 30 April 2025, the Securities and Exchange Board of India (SEBI) issued Notification No. F. No. SEBI/LAD-NRO/GN/2025/245, introducing the SEBI (Depositories and Participants) (Second Amendment) Regulations, 2025. This amendment seeks to further strengthen the governance framework of depositories by prescribing a mandatory cooling‑off period for non‑independent directors before they may take up similar roles elsewhere in the market infrastructure ecosystem.

1. Key Amendment to Regulation 25(1)

• Insertion of a Proviso: A new proviso has been added to Regulation 25(1) of the principal SEBI (Depositories and Participants) Regulations, 2018.
• Scope of Application: Applies specifically to a non‑independent director on the governing board of a depository.
• New Requirement: Such a director, after ceasing to hold office, may not be appointed as a board member of:

1. 1. A recognised stock exchange;
   2. A recognised clearing corporation; or
   3. Another depository; unless the appointment is made with the prior approval of SEBI and only after the completion of a cooling‑off period as determined by the depository’s own governing board.

• Cooling‑Off Period

1. 1. To be specified by each depository’s governing board.
   2. Intended to prevent immediate transitions that could give rise to conflicts of interest or the misuse of privileged information.

2. Rationale and Implications

• Strengthening Independence and Objectivity

1. 1. Ensures that former non‑independent directors do not unduly influence complementary market entities immediately after their tenure.
   2. Helps maintain a clear separation between depository operations and other market intermediaries.

• Mitigating Conflicts of Interest

1. 1. Cooling‑off prevents revolving‑door scenarios where individuals leverage recent inside knowledge.
   2. SEBI’s prior‑approval requirement adds an additional safeguard, allowing the regulator to vet and clear appointments case by case.

• Enhancing Market Integrity

1. 1. Promotes confidence among participants that depository governance remains free from undue external influence.
   2. Aligns depository governance practices more closely with those already in place for stock exchanges and clearing corporations.

3. Next Steps for Depositories

• Board Resolution: Convene the governing board to define and adopt an appropriate cooling‑off period (e.g., six months, one year).
• Policy Update: Amend the depository’s corporate governance charter and director appointment policies to reflect the new proviso.
• Communication to Stakeholders

1. 1. Notify existing and incoming non‑independent directors of the requirement.
   2. Update public disclosures and website governance sections.

• SEBI Approval Process: Prepare a streamlined process for seeking SEBI’s prior approval for any post‑tenure director appointments, including submission checklists and timelines.

4. Effective Date

The Second Amendment Regulations came into force on 30 April 2025, the date of notification. All recognised depositories must comply immediately with the revised Regulation 25(1) and ensure that any relevant appointments made thereafter observe both the cooling‑off requirement and SEBI’s approval procedure.

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