Mumbai, Nov 7 (PTI) Capital markets regulator Sebi is mulling to vet appointments of the heads of risk, compliance and technology at market infrastructure institutions (MII) like stock bourses given the critical role they perform, a senior official said on Thursday.

Speaking at the annual BFSI event organized by the financial daily Business Standard here, Sebi's wholetime member Ananth Narayan said there is also a need to "fundamentally review" the construct of clearing corporations (CCs) and make them "truly independent and self-sufficient".

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Narayan said the MIIs, which also include the CCs and depositors, play a very important role in the system as they are the first level of regulators as well.

There is a risk of a "potential race to the bottom" among MIIs as these entities are also commercial organizations along with being a public utility provider, he said.

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A focus on delivering profits leads to a potential of investments into appropriate security, technology, risk, and operations are de-prioritized, he said, adding that entities have already been informed about upgrading the heads of technology and operations, and of risk and compliance as key management personnel (KMP).

Making it clear that such officials should act independent of short-term commercial considerations, Narayan said SEBI will also require the chief technology officer, chief information security officer, chief risk officer, and chief compliance officers of MIIs to independently interact with their Governing Board Committees.

"Given the critical need to strengthen these verticals, we are also considering SEBI's own involvement in approving the appointment of these specific KMPs, just as we today approve the appointment of the managing director and chief executive of the MII," he added.

He said from next year, Sebi plans to start independent external evaluation of MIIs once every three years, to supplement its supervision.

The Sebi member said public shareholding and listing of MIIs can help improve transparency and enforce better market accountability, but also acknowledged the downsides to this as competition, public shareholding, and listing can create incentives that give primacy to commercial outcomes.

In the comments that come ahead of the largest equity bourse NSE's IPO plans, Narayan said, "Larger MIIs in equity markets" currently enjoy a high operating profit margin of 60 per cent or more high equity price to earnings multiples, and significant dividend payout ratios.

On the clearing corporations, Narayan said there is an "anomaly" because such platforms are fully owned by a parent exchange, and the dominant equity clearing corporation, owned by the dominant exchange, clears over 85 per cent of all cash and derivative equity market trades.

Hundred per cent ownership of CCs by a single exchange "does raise questions of the potential for actual or perceived conflict of interest", he said.

"There is a need to fundamentally review this construct of our CCs. There is a case to consider making the CCs truly independent and self-sufficient, with broad-based ownership, and with clearing members saving a risk based skin in the game," he said, adding that this can create a level playing field across MIIs.

The independence can also help ensure that a CC is able to garner required resources to invest in functions like appropriate technology, risk management, and people, he said.

Sebi will come out with a public consultation on all this shortly and seek your considered views on this subject, he announced.

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