Role of Market Infrastructure Institutions(MIIs)

What is the News?

National Stock Exchange(NSE), the country’s largest equities and derivatives exchange was fined by SEBI for laxity in governance pertaining to actions taken during the tenure of its former MD.

While penalising NSE, SEBI also noted that the NSE was a systemically important market infrastructure institution (MII).

What are Market Infrastructure Institutions (MIIs)?

Stock exchanges, depositories and clearing houses are all Market Infrastructure Institutions(MIIs) and constitute a key part of the nation’s vital economic infrastructure. 

According to the Bimal Jalan Committee (2010), MIIs are systemically important for India as these institutions have seen phenomenal growth in terms of the market capitalization of listed companies, capital raised and the number of investor accounts with brokers and depositories and the value of assets held in the depositories account.

Which institutions in India qualify as MIIs?

Stock Exchanges: SEBI lists seven including  BSE, NSE, Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India as MIIs.

Depositories: They are charged with the safekeeping of securities and enabling their trading and transfer. Central Depository Services Ltd. and the National Securities Depository Ltd has been listed as MIIs. 

Clearing houses: They help validate and finalise securities trades and ensure that both buyers and sellers honour their obligations. SEBI lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation as MIIs.

Why are governance norms critical in the regulation of MIIs?

Any failure of MIIs could result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market. Hence, the governance and oversight of MIIs are absolutely critical, and they need to be of the highest standards. 

For instance, SEBI has set out norms stipulating timelines within which a stock exchange has to take action if its technology fails, including rules for a switchover to back up servers as part of the disaster recovery in an institution that enables transactions running into thousands of crores of rupees daily. 

Source: This post is based on the article “Role of Market Infrastructure Institutions(MIIs)” published in The Hindu on 27th February 2022.