Sebi proposes easier rules for market infrastructure institutions, relaxes analyst call-recording norms

The Securities and Exchange Board of India (Sebi) has proposed easing approval requirements for stock exchanges and depositories undertaking activities linked to their core functions, as part of efforts to reduce regulatory burden and improve ease of doing business.

Separately, the regulator has relaxed record-keeping requirements for research analysts, removing the mandatory requirement to maintain call recordings of interactions with institutional investors.

In a consultation paper, Sebi proposed allowing market infrastructure institutions (MIIs), excluding recognised clearing corporations, to undertake specified activities and deploy funds without seeking prior regulatory approval, subject to financial limits and governance safeguards. The regulator has also issued a circular formalising the relaxation for research analysts, with the revised provisions taking effect from November 8.

Automatic approval route proposed for exchanges, depositories

Under the proposed framework, MIIs could undertake eligible activities through two automatic routes. Route A would cover activities undertaken pursuant to Sebi's directions, certain intra-group share transfers and fund deployment by operating subsidiaries exclusively from their own operational earnings.

Route B would cover activities similar to those performed by an MII through an entity regulated by another Indian financial sector regulator, provided Sebi has previously approved the activity and its nature remains unchanged.

Aggregate fund deployment under the automatic route would be capped annually at the lower of 5% of the MII's net worth as of March 31 of the preceding financial year or the regulatory minimum net worth requirement. Following deployment, the MII's net worth must remain at least 1.5 times the prescribed minimum.

The proposal also requires prior board approval for each activity or fund deployment, safeguards against conflicts of interest, board-approved standard operating procedures and compliance with fit-and-proper criteria for investee companies and their directors and shareholders. MIIs would have to submit half-yearly reports to Sebi within 30 days of each half-year's end.

Sebi said the existing framework imposes similar approval requirements irrespective of an activity's size, nature or risk, creating compliance costs even for small investments supporting market operations. Public comments on the proposals have been invited until November 12.

Research analysts get relief on institutional investor calls

Separately, research analysts and research analyst entities will no longer be mandatorily required to retain call recordings of interactions with institutional investors, as per Sebi’s notification.

However, they must continue maintaining records of service-related interactions with all clients, including prospective clients before onboarding. Acceptable records include signed physical documents, emails from registered email IDs, SMS messages, call recordings and other legally verifiable forms of communication.

According to the markets regulator, these records must generally be preserved for five years. Where a dispute has been raised, the records must be retained until its resolution, while records specifically covered by a Sebi preservation direction must also be maintained.

The regulator has clarified that call recordings are unnecessary for interactions conducted through channels such as email where a digital trail is available. The relaxation follows the Sebi board's approval of the proposal last month.