On Monday, the Securities and Exchange Board of India (SEBI) announced a comprehensive framework to oversee shareholding limits, public shareholding requirements, and the “fit and proper” criteria for Market Infrastructure Institutions (MIIs), which encompass stock exchanges, clearing corporations, and depositories.

This framework applies to both listed and unlisted MIIs, mandating them to disclose their shareholding patterns quarterly on their websites in accordance with SEBI’s Listing Obligations and Disclosure Requirements (LODR) norms.

Each MII is required to appoint a non-associated Designated Depository (DD) to ensure adherence to shareholding limits, with the other depository serving as the DD for depositories.

The DD will monitor breaches of the 5% and 15% threshold limits as specified under the Securities Contracts (Regulation) Act, 1956, and the Depositories and Participants Regulations, respectively. Furthermore, the DD will notify the MII and the relevant stock exchange when the combined holding of 49% by non-residents is breached, facilitating appropriate actions.

SEBI has instructed stock exchanges to ensure that Trading Members (TMs), along with their associates and agents, do not collectively hold over 49% of an MII’s equity, with prior approval needed for purchases exceeding 45%. Clearing corporations must maintain a minimum of 51% ownership by stock exchanges, restricting any single exchange from holding over 15% in multiple clearing corporations.

All shareholders with 2% or more equity are required to fulfil the fit and proper criteria, with MIIs obligated to notify shareholders and report non-compliance to SEBI on a quarterly basis. In cases of breaches, the DD will freeze excess shares, disable voting rights, and transfer dividends from excess holdings to Investor Protection Funds (IPF) or Settlement Guarantee Funds (SGF).

For listed MIIs, any divestment of excess shareholding will occur through a special window provided by the stock exchange, while unlisted MIIs will follow specific directions from SEBI on a case-by-case basis. This framework will take effect on January 12, 2025, 90 days after the circular’s issuance.