Committees at Market Infrastructure Institutions (MIIs) in IFSC

Page 1 of 29 CIRCULAR IFSCA/CMD/DMIIT/MII/CG/2022-23/1 June 28, 2022 To, All Market Infrastructure Institutions (MIIs) in IFSC Dear Sir/Madam, Subject: Committees at Market Infrastructure Institutions (MIIs) in IFSC 1. This has reference to the Chapter VI of IFSCA (Bullion Exchange) Regulations, 2020 [Bullion Exchange Regulations] and Chapter III of IFSCA (Market Infrastructure Institutions) Regulations, 2021 [MII Regulations] with respect to constitution of various statutory Committees in order to ensure effective oversight on the functioning of MIIs. 2. In terms of Regulation 26 of the MII Regulations and Regulation 23 of the Bullion Exchange Regulations, every MII in IFSC, shall constitute the Committees as under: A. Functional Committees, comprising: i. Member Selection Committee ii. Investor Grievance Redressal Committee iii. Nomination and Remuneration Committee B. Oversight Committees, comprising: i. Standing Committee on Technology ii. Advisory Committee iii. Audit Committee iv. Regulatory Oversight Committee v. Risk Management Committee 3. The functions and detailed composition of the above-mentioned Committees are provided at Annexure-I. 4. While the aforementioned annexure provides for the composition that is specific to each statutory Committee at the MII, the overarching principles for composition and Page 2 of 29 quorum of the statutory Committee at MIIs shall be as under, which shall be applicable to all Committees with the exception of Investor Grievance Redressal Committee (IGRC) and Advisory Committee: a. The MII shall ensure that on every Committee, except IGRC, the number of Public Interest Directors (PIDs) shall not be less than the total of number of Shareholder Directors, Key Management Personnel (KMPs), independent external persons, etc. put together, wherever Shareholder Directors, KMPs, independent external persons, etc. are part of the concerned Committee. b. The PID shall be the Chairperson of each Committee of the MII. c. To constitute the quorum for the meeting of the MII Committee, the number of PIDs on each of the Committees of the MIIs shall not be less than the total number of other members (Shareholder Directors, KMPs, independent external persons, etc. as applicable) put together. d. The voting on a resolution in the meeting of the Committees at MIIs shall be valid only when the number of PIDs that have cast their vote on such a resolution is equal to or more than the total number of other members (Shareholder Directors, KMPs, independent external persons, etc., as applicable) put together who have cast their vote on such a resolution. e. The casting vote in the meetings of the Committees shall be with the Chairperson of the Committee. f. Apart from that specifically provided in the Annexure, , a Committee may invite the Managing Director, other relevant KMPs and employees of the MII, as and when required. However, such invitees shall not have any voting rights. As regards the composition and quorum of IGRC and Advisory Committee, the same shall be as prescribed in the enclosed Annexure I. 5. Further, the MIIs are directed to adhere to the following: a. The MIIs shall lay down the policy for the frequency of meetings, etc., for the statutory Committees. b. The PID on the Governing Board of an MII shall not act simultaneously as a member on more than five Committees of that MII. c. It is clarified that the above limitation on maximum number of Committees that a PID can be a member of, shall be applicable only to statutory Committees prescribed under this circular. Page 3 of 29 d. In the case of non-availability of adequate number of PIDs in a MII, the relevant MII shall take steps to induct more PIDs in order to fulfil the requirement of composition of Committees within an MII. e. Meeting of PIDs: i. As per the code of conduct for PIDs provided by IFSCA vide circular 286/IFSCA/ CMD-DMIIT/PM/2021 dated September 13, 2021, the PIDs shall be required to meet separately every six months. All the PIDs shall necessarily attend all such meetings of PIDs. ii. The objective of such meetings, shall include inter alia reviewing the status of compliance with IFSCA letters/ circulars, reviewing the functioning of regulatory departments including the adequacy of resources dedicated to regulatory functions, etc. PIDs shall also prepare a report on the working of the Committees of which they are a member and circulate the same to the other PIDs. The consolidated report in this regard shall be submitted to the Governing Board of the MIIs. Further, PIDs shall identify the important issues which may involve conflict of interest for the MII or may have significant impact on the market and report the same to IFSCA, from time to time. f. Independent external persons in Committees at MIIs: i. The independent external persons forming a part of Committees shall be from amongst the persons of integrity, having a sound reputation and not having any conflict of interest. They shall be specialists in the field of work assigned to the Committee; however, they shall not be associated in any manner with the relevant MII and its members. ii. The MIIs shall frame the guidelines for appointment, tenure, code of conduct, etc., of independent external persons. An extension of the tenure may be granted to independent external persons at the expiry of the tenure, subject to performance review. Further, the maximum tenure limit of independent external persons in a Committee of MII shall be at par with that of the PIDs, as prescribed under Regulation 24(2)(h) of the MII Regulations. 6. The MIIs shall submit a confirmation report to IFSCA with regard to the formation and composition of the Committees listed out in Annexure I and compliance with other norms prescribed in the Circular, at the earliest but not later than 30 days from the date of this Circular. Page 4 of 29 7. The MIIs are directed to: a. take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations; b. bring the provisions of this circular to the notice of their Board members and also disseminate the same on their websites; and c. communicate to IFSCA, the status of implementation of the provisions of this circular in the Monthly Development Report (MDR). This circular is being issued in exercise of powers conferred by Section 12 of the International Financial Services Centres Authority Act, 2019 to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres. A copy of this circular is available on the website of the International Financial Services Centres Authority at www.ifsca.gov.in. Yours faithfully, Praveen Kamat Deputy General Manager Division of Market Infrastructure Institutions & Technology Capital Markets Department email: praveen.kamat@ifsca.gov.in Tel: +91-79-61809820 Page 5 of 29 Annexure-I A. Mandatory Committees for Stock Exchanges in IFSC (including Bullion Exchange) S. No. Name of Committee Brief Terms of Reference Composition FUNCTIONAL COMMITTEES 1. Member Selection Committee • To scrutinize, evaluate, accept or reject applications for admission of members and transfer of membership and approve voluntary withdrawal of membership. • Formulate the policy for regulatory actions including warning, monetary fine, suspension, withdrawal of trading, declaring a member as defaulter, expulsion, to be taken for various violations by the members of the Stock Exchange. • Based on the laid down policy, consider the cases of violations observed during inspection, etc. and impose appropriate regulatory measures on the members of the Stock Exchange. • While imposing the regulatory measure, the Committee shall adopt a laid down process, based on the ‘Principles of natural justice’. • Realize all the assets/deposits of the defaulter/ • A maximum of two KMPs of the Stock Exchange can be on the Committee one of which shall necessarily be the Managing Director of the Stock Exchange. • The Committee may also include independent external persons. • IFSCA may nominate members in the Committee, if felt necessary in the interest of the securities and bullion market. • The number of PIDs shall not be less than the total of number of Shareholder Directors, KMPs and independent external persons put together.