[By Kushagra Prasad]
The author is a student of Gujarat National Law University
Introduction: Governance Gaps in MIIs
Market infrastructure Institutions of India, including the stock exchange, clearing corporation, and depositories, have come under increasing scrutiny for their governance structures. Keeping in mind their strategic positioning within capital markets and possible conflict of interest, the Security Exchange Board of India (SEBI) issued a consultation paper on 24 June 2025 that required the appointment of two distinct Managing Directors (MD) level professionals: one to manage core business and trading, and another for risk, compliance and investor grievance-related functions. The additional officer will be an independent board member, standing equal to current MDs, and will report quarterly to the MII board and SEBI.
This change addresses long-standing issues that MIIs have had, such as too much power vested in one MD-led system, and has reduced oversight of critical compliance and risk activities. SEBI seeks to strengthen internal control, minimize conflict of interest, and ensure board-level attention to core regulatory activities by splitting up senior leadership. Can introducing the dual C-suite model enhance and align India’s MIIs with global standards? This blog piece analyses whether such a change can help increase institutional integrity and investor trust, or run the risk of operational difficulties and boardroom disharmony.
Policy Genesis and SEBI’s Justification
The proposal for SEBI’s dual C-Suite model for MIIs is far from arbitrary. It emerges as a conscious response to a trio of pressing governance challenges. Firstly, the rising complexity in derivatives markets means that existing single-headed executive structures struggle to maintain adequate risk oversight. With the growing sophistication in derivative instruments, MIIs need specialized executive roles to parallel manage trading, counterparty risks, compliances, and technology. Secondly, the failure of investor protection, such as misreporting, privileged trading access, and poor internal controls, has heightened the conflict-of-interest risk inherent in vested executive arrangements. The consultation paper suggests that segregated leadership should be used to make sure that risk and compliance are not secondary to commercial objectives. Thirdly, risk oversight failures have flagged that accountability under a single MD/DEO often becomes opaque. SEBI analysis concludes that operational priorities can overshadow critical risk posture without bifurcation. These core concerns are reflected in the consultation paper:
- The regulator directs quarterly meetings barring the MD/CEO, allowing autonomous board-level executives to assess risk and governance concerns without commercial bias.
- It demands appointment of independent board-level executive directors handling core verticals, one for operations/trading and another for risk/compliance, each with voting rights at the board level and equal standing to the MD.
- It also institutes a direct reporting channel for SEBI, with the new Executive Directors (Eds) submitting quarterly reports to the board and the regulator. They will meet SEBI’s regulatory/risk committee separately, ensuring transparency and eliminating bottlenecks.
By advocating the separation of faces of governance, operational leadership at one end, risk/compliance leadership at the other, autonomous board oversight, and quarterly regulatory interaction, SEBI seeks to eliminate loopholes within internal checks and accountability. This disciplined approach aligns MIIs with worldwide checks & balances practices: independent directors empowered, separation of essential responsibilities, and emphasis on regulatory openness. The outcome is a regulatory structure set to maintain investor confidence, raise risk resilience, and avoid conflicts, without sacrificing the growth and innovation of India’s increasingly complex financial markets.
Comparative Governance Lens
The MIIs reflect an increasing prioritization of independence and risk mitigation globally, particularly within C-suite leadership roles. The UK’s ring-fencing model stands as a classic example. Since 2019, central UK banks have been required to ring-fence all core retail banking activities from riskier investment banking operations. This architecture demands legal and operational separation and imposes ring-fenced governance structures empowered to act independently, ensuring safeguard of retail banking against plague from the group’s wider exposures. Governance is operationalized through differentiated management teams, board committees, and, crucially, distinct Chief Risk Officer (CRO) roles assigned with autonomous oversight of ring-fenced entities. The CRO is protected from any undue influence by other business segments, reflecting the country’s commitment to functional risk management through structural independence.Similarly, the US markets are subject to tightly controlled dual regulation by federal and state governments, with exchanges being multi-layered and supervised by the Securities and Exchange Commission (SEC) and other organizations. This divided regulatory environment ensures that executive risk functions, such as CROs, are subject to internal checks and external supervision, thus dispersing concentrated power and making the market participants accountable. US exchanges should be required to identify compliance and risk roles with direct reporting lines to independent board committees, further enhancing transparency and responsible risk-taking.
Turning to the Indian baseline, SEBI’s existing governance climate already reflects a degree of functional segregation, for instance, by excluding Managing Directors from audit committee chairs. Still, the consultation paper underscores that current practices vest overarching authority in the MD, potentially diluting operational, risk, or compliance oversight. The proposed dual C‑suite mechanism strengthens this segregation by mandating that each ED matches the MD in stature, reports directly to the governing board and SEBI, and is prohibited from holding external board positions beyond narrow exceptions.
Expected Benefits v. Practical Challenges
The model can potentially change MIIs like stock exchanges, clearing corporations, and depositories. On the positive side, it strengthens in-house checks and inculcates a more focused attention to risk. By keeping one ED to oversee essential operations (trading, clearing, settlement) and another to lead regulatory, compliance, risk management, investor grievance, the structure builds redundancy into the leadership pyramid, bolstering oversight in areas prone to systemic failure. In addition, SEBI’s framework encourages more transparent governance and balanced budgets. EDs will be required to report to Sebi and the governing board every three months resulting in greater board-channel confidence and higher investor trust. With this, the perceptions of investors are likely to improve. MIIs will appear less profit‑motivated and more utility‑led, increasing retail and institutional credibility. This also pre-empts frequent SEBI notices cautioning against over-commercializing MIIs, pointing to increasing dividends and profit margins, by reasserting their public‑utility purpose.
That said, ambition could run counter to implementation. Hiring EDs of sufficient MD‑level stature represents a skill‑supply problem, particularly as SEBI mandates independent external agencies to screen candidates for niche positions such as CTO, CISO, etc. This creates uncertainty regarding deep bench strength in qualified leaders. Role clarity also risks becoming blurred: dividing commercial and compliance verticals could release tension around budgets and control, setting off possible board–management tensions. Moreover, despite the MD retaining central authority, peer EDs might clash over mandate overlaps, a recipe for internal turf wars. While SEBI’s dual C‑suite model holds promise, bringing transparency, risk discipline, and renewed investor confidence, it could falter if institutions struggle to attract suppress‑conflict talent and craft clear demarcation lines in a high‑stakes, resource‑competitive setting. This tension defines the benefit–challenge calculus of the proposal.
Conclusion and Way Forward
As the dust settles on SEBI’s proposed dual‑C‑suite model for MIIs, the regulator must navigate the delicate balance between stronger inspection and real‑world feasibility. The real success of the proposed model will hinge on thoughtful implementation. The market regulator must implement it in phases after consulting stakeholders to ensure that the model is sound in design and feasible within the structural conditions of exchanges and clearing corporations.
There is still a critical need for empirical studies. One of the most crucial questions is how the change will impact MIIs during their first public offering stages, and will the listing review become more demanding? Analysts should track how the introduction of dual chiefs impacts major risk events, such as cyber‑incidents or breakdowns in clearing, and if these changes yield measurable reductions in system‑wide risks. These questions will give valuable suggestions to SEBI and researchers, enabling continuous model refinement.
Whether SEBI should turn the current guidance into legally binding regulations is still debated. A rules-based mandate may provide clarity, but there is a risk of restricting flexibility and enforcing uniform standards across different institutions. On the other hand, a principles-based framework supported by regular surveillance might offer greater flexibility but might not have as much enforcement power. SEBI’s next course of action will significantly impact the governance regime’s effectiveness and resilience, whether through legislation or circulars.