Listing, improvement in corporate governance norms and higher regulatory requirement in terms of ownership, certain additional standards of essential accountability for Credit Rating Agencies (CRAs), share registrar and transfer agents (RTAs) and debenture trustees (DTs) are among the key areas where an expert committee appointed by SEBI gave its recommendations.

The committee led by R Gandhi, former deputy governor of the RBI, has submitted two-part report to SEBI this year, out of which the second part was made public by the regulator.

According to the recommendations put out in public domain, every large RTA should move towards listing on exchanges. With regard to CRAs, the panel suggested that it may not be desirable to prescribe any additional ownership norms for rating agencies at this stage. It also recommended that the appeal committee should be renamed as review committee as the word appeal has a legal connotation and that the review committee should also have independent members. It deliberated on the possibility of mandating the presence of Public Interest Directors (PIDs) in the board of CRAs as they satisfy the 'Essential Facility Doctrine' and 'Public Utility' criteria.

SEBI had set-up the committee in October 2017 to review existing framework of market infrastructure institutions (MIIs). The committee in its recommendations with regard to stock exchanges and clearing corporations has suggested a major rejig of rules for appointment of top executives. It suggested mandatory rotation of key management personnel, capping salaries for such personnel at bourses and increasing the proportion of PIDs.

On the RTAs, the committee recommended that only those entities that are governed by any of the international regulators under the purview of the International Organisation of Securities Commissions be allowed to own majority stakes in India’s QRTAs (qualified RTAs). View is to allow them to hold up to 100 per cent equity. Non-regulated entities cannot hold more than 15 per cent individually and 49 per cent collectively, the report said.

According to the committee report, Karvy Computershare and Computer Age Management Services (CAMS) account for 90 per cent of mutual fund investor accounts. Those handling more than 20 million accounts should be classified as QRTAs. The panel said these should have a diversified ownership structure. CAMS and Karvy Computershare are a treasure trove of data on stock market and mutual fund (MF) participants.

The committee was tasked to consider whether RTAs could be classified as market infrastructure institutions MIIs such as stock exchanges, clearing corporations and depository participants, which face ownership restrictions. It said that though RTAs do not have all the attributes of an MII, they should be classified as ‘important market intermediaries’ and mandated to follow high standards of corporate governance and ownership structure, and have only regulated entities as majority stakeholders.

“In view of the Doctrine of Reasonable Expectation, on becoming a QRTA, it may be given sufficient time, preferably five years, to achieve such an ownership structure,” the panel recommended.

It also suggested that board of RTAs should have one-third public interest directors if the chairperson is a non-executive director. Such directors should compose at least half the board if the QRTAs does not have a regular non-executive chairperson.

It has recommended a ‘review committee’ to appeal against a rating should include independent members. It said debenture trustees (DTs) face a number of challenges, requiring a separate ‘and comprehensive review’. The committee is of the view that review of ownership and governance of DTs is not the immediate priority; rather the role and obligations of DTs need a comprehensive review separately.

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