SEBI Proposal Could Expand Financial Market Infrastructure Businesses

SEBI's proposal could create new opportunities for financial market infrastructure by easing approval rules for exchange technology services and related businesses

India's stock exchanges and depositories could get more flexibility to expand into data, analytics and technology businesses under a proposal from the Securities and Exchange Board of India (SEBI). The proposed changes would allow eligible operating subsidiaries to reinvest earnings in specified related activities without seeking fresh regulatory approval. The move could open new opportunities for financial market infrastructure.

Automatic Approval for Selected Activities

Under the proposed framework, certain activities connected to the core functions of exchanges and depositories could qualify for automatic approval. These include activities carried out at SEBI's direction, specific share transfers between an MII and its subsidiaries, and the reinvestment of earnings generated by an operating subsidiary.

The proposal also covers certain activities undertaken through investee companies regulated by other financial-sector regulators, provided SEBI has already approved the activity and its scope remains unchanged.

According to SEBI, the proposed framework aims to provide greater flexibility for eligible activities. It could help exchanges introduce services more efficiently and explore opportunities in exchange technology services.

Flexibility Within Capital Market Regulations

The proposed changes could reduce administrative delays and allow market infrastructure institutions to make better use of their existing resources. They may also create opportunities to expand data, analytics and information services.

However, the relaxation would operate within existing capital market regulations and additional governance requirements. The governing boards of MIIs would have to approve new activities and fund deployments while ensuring that commercial interests do not interfere with regulatory responsibilities.

Safeguards Against Conflicts of Interest

The proposal includes safeguards such as arm's-length arrangements, ring-fencing of shared resources, fit-and-proper compliance and half-yearly reporting to SEBI.

Legal experts have highlighted the need to prevent conflicts of interest, particularly where exchanges and depositories have access to sensitive market information.

Recognised clearing corporations will remain outside the proposed automatic approval route. Activities beyond the specified categories will continue to require prior SEBI approval.

If implemented, the proposal could give exchanges and depositories more room to develop related businesses while maintaining oversight of their core market responsibilities.

Frequently Asked Questions

1. What is financial market infrastructure?

Financial market infrastructure refers to the institutions and systems that support financial markets, including stock exchanges, depositories and clearing corporations.

2. What is SEBI proposing for stock exchanges?

SEBI has proposed automatic approval for certain activities undertaken by stock exchanges, depositories and their operating subsidiaries.

3. How could capital market regulations change under the proposal?

The proposal could reduce approval requirements for specified activities while retaining board oversight and regulatory safeguards.

4. What are exchange technology services?

These include technology-based solutions supporting trading operations, market information, data analytics and other exchange-related activities.

5. Will clearing corporations receive automatic approval?

No. Recognised clearing corporations are excluded from the proposed automatic approval mechanism.