In a significant move to enhance market integrity, the Securities and Exchange Board of India (SEBI) has recently implemented a mandatory SEBI Cooling-Off Period for Directors who wish to transition between competing market infrastructure institutions (MIIs).
This regulatory amendment, announced on April 30, 2025, aims to fortify governance frameworks across stock exchanges, clearing corporations, and depositories throughout India.
New Governance Framework for Market Infrastructure Institutions
The markets regulator has introduced amendments to both the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC Regulations) and the Depositories and Participants norms 2018.
Consequently, these changes establish clear guidelines for director transitions between competing institutions, particularly addressing potential conflicts of interest.
Under the new regulations, non-independent directors serving on the board of an MII must adhere to two essential requirements before joining a competing institution:
- Observe a mandatory cooling-off period as specified by the governing board
- Obtain prior approval from SEBI for the new appointment
Impact on Non-Independent Directors
For non-independent directors, the implications are substantial. Moreover, these professionals must now carefully plan their career transitions between market institutions.
The SEBI Cooling-Off Period for Directors specifically targets situations where a director might move from one exchange or clearing corporation to another competing entity.
According to the notification, “Non-independent director on the governing board of a recognised stock exchange or a recognised clearing corporation may be appointed in another recognised stock exchange or a recognised clearing corporation or a depository with the prior approval of the Board (SEBI)only after a cooling-off period as may be specified by the governing board of such recognised stock exchange or recognised clearing corporation.”
Special Provisions for Public Interest Directors
The amendments include specific provisions for public interest directors. After completing their term at one MII, these directors can be appointed for a further three-year term at another stock exchange, clearing corporation, or depository. However, this appointment requires SEBI’s prior approval.
Furthermore, SEBI has clarified that the cooling-off period applies only when a public interest director seeks appointment in a competing market infrastructure institution.
This distinction acknowledges the different roles and responsibilities carried by various types of directors.
Strategic Rationale Behind the New Regulations
The implementation of the SEBI Cooling-Off Period for Directors represents a thoughtful approach to maintaining market integrity.
Besides ensuring proper governance, these measures help prevent potential conflicts of interest that could arise when directors immediately transition between competing entities.
Additionally, these regulatory changes align with global best practices in financial market governance. Many international jurisdictions have similar cooling-off requirements for key positions in financial infrastructure organizations.
Strengthening Market Confidence
The cooling-off period serves multiple purposes beyond preventing conflicts of interest:
- It helps maintain the confidentiality of strategic information
- It ensures directors have sufficient separation from previous roles
- It protects market participants from potential favoritism or undue influence
- It enhances overall trust in market infrastructure institutions
In essence, these measures bolster market confidence by promoting transparency and ethical governance. Investors and market participants can therefore trust that decisions made by MIIs are free from undue influence or conflicts.
Implementation Timeline and Industry Response
The amendments took effect immediately upon notification on April 30, 2025. As a result, all MIIs must now incorporate these cooling-off requirements into their governance frameworks and appointment procedures.
Initial industry response has been largely positive, with most market participants acknowledging the importance of robust governance structures. Nevertheless, some have expressed concerns about potential challenges in recruiting specialized talent for these critical roles given the new restrictions.
Broader Governance Initiatives
The cooling-off period regulations form part of SEBI’s broader initiatives to strengthen governance at market infrastructure institutions.
In March 2025, SEBI’s board reviewed various aspects of appointing key officials at stock exchanges and other market institutions.
These ongoing efforts reflect SEBI’s commitment to maintaining India’s position as a well-regulated and trusted financial marketplace.
Through careful balancing of regulatory oversight and operational flexibility, SEBI continues to enhance the integrity of India’s financial markets.
Expert Editorial Comment
The introduction of the mandatory SEBI Cooling-Off Period for Directors marks an important step in strengthening governance frameworks across India’s market infrastructure institutions.
By implementing these cooling-off requirements, SEBI has demonstrated its commitment to preventing conflicts of interest and enhancing market integrity.
Moving forward, these regulations will likely have far-reaching implications for governance practices across India’s financial markets.
Overall, the cooling-off period requirement represents a thoughtful approach to balancing the need for experienced directors with the imperative of maintaining market integrity and trust.
As markets continue to evolve and become increasingly interconnected, such governance measures will play a vital role in ensuring that India’s financial infrastructure remains robust, transparent, and worthy of investor confidence.
