India’s securities market regulation once rested on a simple principle: authority and accountability must travel together. Exchanges were granted significant powers and were held accountable for failures in surveillance, risk management and investor protection.

That principle is now being tested. Over the years, SEBI has steadily expanded its influence over the governance of exchanges, clearing corporations and depositories. It now plays an increasingly decisive role not only in setting the rules of the game but also in determining who occupies key positions.

Exchanges are systemically important institutions serving millions of investors and forming the backbone of India’s financial markets. Stronger governance and greater oversight are legitimate objectives.

The question, however, is whether greater control is coming at the cost of clear accountability.

Expanding regulatory influence

SEBI recently mandated the appointment of two executive directors in market infrastructure institutions, one overseeing operations and business functions and the other responsible for regulatory functions. Both report to the managing director and form part of the senior leadership. The NSE has recently made these appointments.

Viewed in isolation, this appears sensible. The separation of commercial and regulatory responsibilities is intended to reduce conflicts of interest and strengthen market oversight. Yet, this reform is only one part of a broader trend.

Today, SEBI approves managing directors, exercises significant influence over the appointment of public interest directors and has expanded its scrutiny of key managerial personnel responsible for risk, compliance, technology and information security.

The cumulative effect is........

© Free Press Journal