SEBI's Proposal for Enhanced Oversight: Impact on Governance Structures and Ensuring Checks and Balances in Leadership Roles

India's market regulator, the Securities and Exchange Board of India (SEBI), has proposed enhancing board oversight across key operations of market infrastructure institutions (MIIs), including trading, risk, and compliance functions. A new consultation paper outlines the requirement for MIIs—which include exchanges and depositories—to appoint two senior officers to independently head trading and risk/compliance operations. These officers must be of stature comparable to the Managing Director (MD) and will become part of the MII governing board. Under the proposal, SEBI’s regulatory and risk management committee would hold quarterly meetings with the appointed officers, excluding the MD. The new officers are also mandated to report to both the MII board and SEBI every three months and are barred from holding board memberships elsewhere. This proposal follows SEBI’s recent move to expand board oversight of senior positions within MIIs, aiming to further regulate power distribution and support steps toward a public listing of India's leading derivatives exchange.

How can organizations ensure effective checks and balances in leadership roles to prevent concentration of power? What impact might these proposed changes have on the governance structures of MIIs?

Organizations can ensure effective checks and balances in leadership roles to prevent the concentration of power in several ways. Firstly, they can establish clear roles and responsibilities for each leadership position, ensuring that no single individual has control over all decision-making processes. Secondly, they can implement a system of regular audits and evaluations to monitor the performance and conduct of leaders. Thirdly, they can encourage a culture of transparency and open communication, where employees at all levels feel comfortable voicing concerns and suggestions.

The proposed changes by SEBI could have significant impacts on the governance structures of MIIs. By mandating the appointment of two senior officers to independently head trading and risk/compliance operations, the proposal aims to distribute power more evenly and reduce the potential for conflicts of interest. This could lead to more robust and effective governance structures, as decisions would be made collectively rather than unilaterally. Furthermore, by requiring these officers to report to both the MII board and SEBI every three months, the proposal would increase accountability and transparency within MIIs. However, these changes could also present challenges, such as finding qualified individuals to fill these roles and ensuring that they can work effectively within the existing governance structures.