SEBI Update – Parameters for Performance Evaluation of Market Infrastructure Institutions

This circular outlines SEBI’s framework for the performance evaluation of Market Infrastructure Institutions (MIIs), which include recognized stock exchanges, clearing corporations, and depositories. The key points are as follows:

1. Regulatory Requirement for Performance Evaluation:
   According to the SEBI (Stock Exchanges and Clearing Corporations) Regulations, 2018, and SEBI (Depositories and Participant) Regulations, 2018, every recognized MII must appoint an independent external agency to evaluate its performance, including that of its statutory committees. The evaluation must follow the periodicity and manner specified by SEBI.
2. Establishment of Basic Minimum Standards:
   To ensure uniformity in the evaluation process, SEBI and the Industry Standards Forum (ISF) of MIIs developed basic criteria with corresponding weightages. These criteria are designed to bring consistency across evaluations by the external agency. The criteria include both quantitative and qualitative Key Performance Indicators (KPIs).
3. Approved Framework and Criteria:
   Based on discussions within the ISF and subsequent internal deliberations, SEBI has approved the following evaluation criteria and weightages:
   Resilience in Technology and Processes (40%)
   Investor Education and Protection (17%)
   Efficient Discharge of Regulatory Role (15%)
   Compliance with Regulatory Norms (10%)
   Evaluation of Governance Practices (8%)
   Adequacy of Resources (5%)
   Fair Access and Treatment to All Stakeholders and Information Disclosure (5%)
   These criteria may be revised depending on changes in the regulatory and operational environment.
4. Rating Framework:
   A rating framework has been established to ensure consistency in assessments, allowing for comparison across MIIs and monitoring of trends over time. This rating reflects the independent external agency’s judgment on the MII’s performance in relation to expected outcomes.
5. Appointment of Independent External Agency:
   MIIs must appoint an external agency with SEBI’s prior approval. The agency must possess the necessary expertise in securities markets and the functioning of MIIs. The selection process must avoid conflicts of interest, and the agency must not have been employed by the MII during the evaluation period or until the report’s submission.
6. Evaluation Timeline:
   The independent external evaluation must occur once every three years.
   First Evaluation: For FY 2024-2025, with the report due by September 30, 2025.
   Subsequent Evaluations: Every three fiscal years, with the report due within six months of the end of the third fiscal year.
7. Performance Evaluation of Key Management Personnel (KMPs):
   The SEBI regulations require MIIs to define roles, responsibilities, and KPIs for each KMP, ensuring the inclusion of regulatory, risk management, and compliance outcomes. The performance evaluation of the Managing Director (MD) should allocate at least 50% weightage to outcomes related to critical operations and regulatory compliance.
8. Applicability:
   The provisions of this circular come into effect 30 days from its issuance.

Link – https://www.sebi.gov.in/legal/circulars/sep-2024/parameters-for-performance-evaluation-of-market-infrastructure-institutions_86974.html