Comments received regarding the Consultation Paper on appointment of Public Interest Directors on the Governing Board of Market Infrastructure Institutions.

Public Comments received regarding the “Consultation Paper on appointment of Public Interest Directors on the Governing Board of Market Infrastructure Institutions S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper 1 IFSCA Consultation We suggest to consider including Directors who have held senior management positions across Paper (Annexure-I) the following experience as a multiple functional domains/ administrative roles may/ may-not Paragraph – 3 (i) and criteria: “a professional/ person have a specific area of expertise as prescribed. However their (ii)(Qualification and who has held a senior management senior level experience provides a broader outlook and Diversity Expertise of the position with experience across to the Board. Hence this experience should be considered. members of the multiple functional domains and or Governing Board of an administrative areas .” MII) 2 IFSCA Consultation We propose that approval of the For PID appointment, MIIs approach professionals / officials who Paper (Annexure-I) IFSC Authority shall be sought for have held senior positions seeking their prior consent. Based on Paragraph 4 (a) (b) (c) one candidate at a time for each PID past experience, such officials generally have reservations in (d) (e) (Appointment vacancy. providing prior consent due to reputational issues. We process of a PID) In the event the Authority is not understand that this approach will be smooth except in a few satisfied with the shortlisted cases. This process may be reviewed in due course. candidate, the Authority shall instruct the MII to submit the details of alternate candidate, for IFSCA consideration. 3 IFSCA Consultation This provision may be re- Appointment of a nominee director by IFSCA may not be linked to Paper (Annexure-I) considered and be excluded. appointment of a PID in the normal course as the same appears Paragraph 4 (f) as an indicator of deficiencies in the functioning of the MII. (Appointment of IFSCA, has powers to appoint Directors on the Board of MIIs, in Nominee Director) the normal course in accordance with Regulation 24 (2A) of IFSCA (MII), Regulations, 2021. .S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper 4 IFSCA Consultation The IFSCA may dispense with the As per current IFSCA provisions NIDs who are appointed on the Paper (Annexure-I) requirement of shareholder Board already represent the shareholders. Paragraph 4 (h) approval for appointment of PIDs (Appointment process of a PID) 5 IFSCA Consultation 1. The evaluation metrics for 1. The assessment of officials with senior management Paper (Annexure-I) new PIDs to be considered experience for Board positions, is based on qualitative Paragraph 10 for Board appointment may factors relating to their experience and expertise, which (Skill based provide the broad criteria may not be possible to quantify. evaluation metrics) and Indicative Parameters 2. Access to information about the PIDs performance in on without any numerical various Board(s)/Committee(s) may not be possible to be weightages obtained, due to privacy requirements. 2. The Evaluation metrics may exclude “Role Synergy” Criterion. 6 IFSCA may consider engaging with Regular engagement between IFSCA and the Board of Directors the Board of Directors of MIIs at shall enhance transparency and enables proactive identification least once annually to exchange of governance and operational challenges. views and discuss key governance and operational issues. 7 As per IFSCA Circular dated June 28, Permitting NIDs to be the members of NRC, ROC and RMC would 2022 on ‘Committees at MIIs in ensure shareholder perspective and a balanced representation in IFSC’ Non Independent Directors the decisions. (NID) are not permitted to be on NIDs possess comprehensive experience and expertise in the NRC, ROC and RMC of MIIs. functioning of MIIs. SEBI vide circular ref. SEBI/HO/MRD/MRD-PoD-S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper 3/2024/088 dated June 25, 2024 Further all key proposals like compensation and appointment of has permitted Non Independent MD, require Board and Shareholder approval. The presence of Directors on the NRC, ROC and RMC NIDs in NRC will facilitate faster shareholder approval. of MIIs. This may be subject to the condition that the total number of PIDs on a statutory committee is equal to or greater than the number of all the other members of such committee and for any resolutions requiring voting, the number of PIDs casting their vote is more than the other members casting their vote. 8 SEBI Consultation Paper on - ‘Provisions Pertaining to Appointment of Public Interest Directors’ dated August 29, 2024, referred to the crucial role of PIDs in efficient functioning of MIIs, and had sought comments on various aspects including remuneration of PIDs. It is suggested that IFSCA may consider consultation in this regard, if needed, to formulate a suitable policy for IFSCA entities. 9 Knowledge IFSCA should maintain a PID talent Ensures access to vetted candidates and supports diversity. upgradation Repository of PIDs 10 Knowledge Include third-party fit-and-proper Reduces burden on IFSCA and enhances screening objectivity. upgradation certification for PID nominees of PIDsS. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper 11 Para 3(i): Include “Business Development” as Business development expertise is essential for MIIs operating in The Governing Board a recognized skill area for Board competitive, international financial environments. It supports shall consist of at least members strategic growth, global engagement, and revenue diversification. one Public Interest Director (PID) having the requisite qualification and experience in each of the areas of : capital markets, finance and accountancy, legal and regulatory practice, and technology. 12 Para 5: In case of Mandate disclosure, if PID is not Prevents arbitrary removals and supports PID independence. reappointment of a reappointed despite satisfactory PID, the MII shall performance make an application to the Authority at least two months prior to the expiry of the term. 13 Para 8(h): PROVISO PROVISO TO BE ADDED: post the If a PID serves two full terms, there should be a cooling-off period TO expiry of term(s) at the recognized (e.g., 6 months to 1 years) before they are reappointed again to BE ADDED stock exchange or the recognized any MII.S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper clearing corporation / depository, With respect to the a public interest director may be This enables the inclusion of new candidates with diverse appointment of nominated for a further term of expertise while minimizing the risk of a PID becoming overly Directors, Regulation three years in other recognized aligned with the interests of the MII they are meant to 24 (2) of the MII clearing corporation or recognized independently oversee. Regulations states stock exchange, or a depository, that: only after a cooling-off period of one year Public interest director shall be nominated for a term of three years, extendable by another term of three years subject to performance review as may be specified by the Authority; 14 Para 9(i): We suggest to include external Improves credibility and impartiality in the review process. governance expert in NRC for PID The Nomination and Performance reviews, if possible Remuneration Committee (NRC) shall frame theS. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper performance review policy for the PIDs. 15 IFSCA Consultation We propose that approval of For PID appointment, MIIs approach professionals / officials Paper (Annexure-I) the IFSC Authority shall be who have held senior positions seeking their prior consent. Paragraph 4 (a) (b) sought for one candidate at a Based on past experience, such officials generally have (c) (d) (e) time for each PID vacancy. reservations in providing prior consent due to reputational (Appointment issues. We understand that this approach will be smooth process of a PID) In the event the Authority is not except in a few cases. satisfied with the shortlisted This process may be reviewed in due course. candidate, the Authority shall instruct the MII to submit the details of alternate candidate, for IFSCA consideration. 16 IFSCA Consultation We propose NRC must see these Directors who have held senior management positions across Paper Paragraph 21 as desirable abilities and adopt a multiple functional domains/ administrative roles may/ may- (Evaluation criteria yes or no verification. The over- not have a specific area of expertise as prescribed. However, for fresh all combined strength of the their senior level experience provides a broader outlook and appointment of a Board is of crucial significance. Diversity to the Board. Hence this experience should be PID) considered. 17 IFSCA Consultation This provision may be re- Appointment of a nominee director by IFSCA may not be Paper (Annexure-I) considered and be excluded. linked to appointment of a PID in the normal course as the Paragraph 4 (f) same appears as an indicator of deficiencies in the (Appointment of functioning of the MII. Nominee Director) IFSCA, has powers to appoint Directors on the Board of MIIs, in the normal course in accordance with Regulation 24 (2A) of IFSCA (MII), Regulations, 2021.S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper 18 IFSCA 1. The evaluation metrics for 1. The assessment of officials with senior management Consultation new PIDs to be considered experience for Board positions, is based on qualitative Paper (Annexure- for Board appointment may factors relating to their experience and expertise, which I) provide the broad criteria may not be possible to quantify. Paragraph 10 and Indicative Parameters 2. Access to information about the PIDs performance (Skill based without any numerical in on various Board(s)/Committee(s) evaluation metrics) weightages may not be possible to be obtained, due to privacy The Evaluation metrics may requirements. exclude “Role Synergy” Criterion. 19 - IFSCA may consider engaging with Regular engagement between IFSCA and the Board of the Board of Directors of MIIs at Directors shall enhance transparency and enables proactive least once annually to exchange identification of governance and operational challenges. views and discuss key governance and operational issues. 20 - As per IFSCA Circular dated June Permitting NIDs to be the members of NRC, ROC and RMC 28, 2022 on ‘Committees at would ensure shareholder perspective and a balanced MIIs in IFSC’ Non Independent representation in the decisions. Directors (NID) are not permitted to be on NRC, ROC NIDs possess comprehensive experience and expertise in and RMC of MIIs. the functioning of MIIs. SEBI vide circular ref. Further all key proposals like compensation and SEBI/HO/MRD/MRD- PoD- appointment of MD, require Board and Shareholder 3/2024/088 dated June 25, approval. The presence of NIDs in NRC will facilitate faster 2024 has permitted Non shareholder approval. Independent Directors on the NRC, ROC and RMC of MIIs.S. No. Paragraph no. Comments/Suggestion/Proposed Detailed Rationale as per annexure 1 Amendment of the Consultation Paper This may be subject to the condition that the total number of PIDs on a statutory committee is equal to or greater than the We propose that the Non- number of all the other members of such committee and for Independent Directors (NIDs) of any resolutions requiring voting, the number of PIDs casting IFSC MIIs may be permitted to their vote is more than the other members casting their vote. become members of NRC , ROC and RMC of MIIs. Response: During the public consultation, comments were received from the Market Infrastructure Institutions and other stakeholders. The circular was suitably modified pursuant to the comments received from the stakeholders.