SEBI Enforces Cooling-Off Period for MII Directors With Prior Approval

Notification No. SEBI/LAD-NRO/GN/2025/246, Dated 30.04.2025

The Securities and Exchange Board of India (SEBI) has introduced a significant amendment to Regulation 24 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (commonly referred to as the SECC Regulations). This amendment seeks to enhance governance standards in Market Infrastructure Institutions (MIIs), which include stock exchanges, clearing corporations, and depositories.

1. Overview of the Amendment

The revised Regulation 24 now stipulates that any non-independent director serving on the board of a recognised stock exchange or clearing corporation shall not be eligible for direct appointment to the board of another recognised stock exchange, clearing corporation, or depository, unless the following two conditions are met –

• A cooling-off period, as specified by the governing board of the prospective institution, has been observed.
• The appointment is subject to prior approval from SEBI.

This regulatory update also applies in reverse—i.e., from a depository to a stock exchange or clearing corporation—ensuring uniformity across all types of MIIs.

2. Purpose and Rationale

The amendment aims to –

• Promote independence and impartiality in the governance of MIIs,
• Prevent potential conflicts of interest that may arise when directors move directly between regulatory entities without a break,
• Reinforce regulatory checks and balances by mandating SEBI’s prior approval for such appointments, and
• Strengthen the perception and reality of transparent, arm’s-length governance in the functioning of financial market infrastructure.

Given the systemic importance of MIIs in safeguarding market integrity, SEBI continues to tighten the corporate governance norms to align with global best practices.

3. Implications for Market Participants

This change will have several operational and strategic implications for MIIs and their boards –

• Board Planning – Governing boards will now need to account for the cooling-off requirement when considering the appointment of non-independent directors from other MIIs.
• Succession Management – Succession planning processes will need to factor in regulatory timelines and approval procedures.
• Director Mobility – The movement of experienced personnel between MIIs will now be more regulated, ensuring better oversight but also requiring longer-term planning.

4. Broader Context

This amendment is part of SEBI’s larger agenda to further professionalise the boards of MIIs. In recent years, SEBI has introduced a range of reforms concerning director eligibility, tenure limits, independence, conflict-of-interest policies, and fit-and-proper criteria for MII governance. The addition of a cooling-off requirement underscores SEBI’s commitment to strengthening institutional governance and investor confidence in the capital markets.

5. Effective Date

The amendment shall come into effect from the date of its publication in the Official Gazette. All subsequent appointments must adhere to the new regulatory framework.

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