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Sebi is looking to align salaries paid to directors and key management personnel at stock exchanges in line with provisions of the Companies Act

Mumbai: The Securities and Exchange Board of India (Sebi) is looking to align the remuneration paid to directors and key management personnel at stock exchanges in line with provisions of the Companies Act, two people with direct knowledge of the matter said.

This is part of the comprehensive review of governance and ownership norms at stock exchanges and clearing corporations which the regulator had embarked on in February. 

The review will focus on increasing the governance, accountability and transparency at these market infrastructure institutions, said the two people on condition on anonymity.

On 11 February, the Sebi board had decided to do this review in the wake of exchanges getting listed and observing certain governance lapses. Sebi had invited comments from the market to finalize a list of proposed norms. 

“A discussion paper is being prepared,” said one of the two people cited above. “The regulator is also looking to increase transparency in the appointment of Public Interest Directors (PIDs) and independent directors and have norms in place to hold them accountable for their decisions.” 

A Sebi spokesperson didn’t answer an email seeking comments sent on Wednesday. 

“Sebi is also considering forming a new committee to examine the larger governance and ownership issues at the exchanges,” said the second person. On 2 June, the regulator had separately formed a panel headed by Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank Ltd, to review norms for governance in listed firm. 

Under the current Stock Exchange and Clearing Corporation (SECC) norms, which were finalized in 2012, public interest directors are entitled to just a sitting fee, in line with the Companies Act, 1956.

In addition, remuneration paid to key managerial personnel (KMP) has to be ratified by the nomination and remuneration committee, which is made of majority public interest directors.

However, the Companies Act 2013 prescribes stricter limits.

It stipulates that the total managerial remuneration payable by a public company to its directors, including managing director and whole-time director, and its manager cannot be more than 11% of the net profit of that company. For any one managing director; or whole-time director or manager, total remuneration shall not exceed 5% of the net profits. 

“Another suggestion that Sebi is considering is extending the term of independent directors to five years as laid down in companies’ law. There are also certain provisions under the Listing Obligation and Disclosure Requirements (LODR) that are not aligned with SECC norms. Considering that exchanges have listed, the norms will be aligned to avoid ambiguity,” said the second person. 

Independent directors, under the SECC norms, can have a term of three years and are eligible for re-appointment after a cooling-off period of one year. However, the Companies Act 2013 allows the directors to have a term of five years, extendable by another five. 

To increase accountability of the exchange’s governing board, Sebi may prescribe board evaluation on a half-yearly basis compared to the prevalent once-a-year review. 

“There should be rationalizing of differential norms for exchanges, clearing corporations and depositories. Structuring of commodity exchanges also require a fresh look. Fit and proper is very onerous for promoters/owners. Once an owner becomes unfit, what should be done? Policy and law need relook at that,” said Sumit Agrawal, Founder, Suvan Law Advisors. 

For depositories and clearing corporations, Sebi is considering bringing parity with norms for stock exchanges such as grant of permanent recognitions for clearing corporations and for depositories, and aligning appointment process of KMPs.