Key Notes of SEBI Circular on: Shareholder Monitoring of Market Infrastructure Institutions (MIIs) dated 14 October 24

Summary: On October 14, 2024, SEBI issued circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/139 to establish a framework for monitoring the shareholding of market infrastructure institutions (IMIs), which includes listed and unlisted entities. . The circular requires MIIs to disclose their shareholding patterns on their websites as per the formats specified in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Each MII must appoint a designated depository (DD) for monitoring, unless that his ISIN is frozen for debits. The DD is responsible for coordinating information between depositories, monitoring trading member participation limits and ensuring compliance with regulatory requirements. MIIs must disclose their shareholding on a quarterly basis, providing details of their share capital at the time of appointment of the DD. Shareholders who acquire or hold 2% or more of equity shares must be considered “fit and proper”. In the event of non-compliance with the criteria, voting rights may be frozen and social benefits will be refused. The circular takes effect 90 days after issuance, urging IIMs to implement necessary systems and inform market participants accordingly. This step aims to improve compliance and transparency of shareholding structures within the financial market infrastructure.

SEBI has issued a circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/139 dt October 14, 24 For “Shareholder monitoring of market infrastructure institutions (MIIs) »

The key points of the summary can be highlighted as below:

• The framework for controlling and guaranteeing compliance with shareholding standards currently applicable to listed stock exchanges and listed depositories, will be applicable to all MIIs (i.e. listed and unlisted)
• All ITNs must disclose their shareholding structure according to the requirements and formats specified for listed companies under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015) on their respective websites
• Each MII appoints a depositary as “Designated Depositary (DD)”
• However, in the event that the ISIN of an MII is frozen for company debits (MII), the appointment of a DD is not required to control the participation limits of that MII.
• All ITNs mustcloses their shareholding with a separation by category in accordance with the requirements and formats specified for listed companies under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015) on a quarterly basis on their respective websites.
• The MII must, at the time of appointment of the DD, provide the details of the share of capital releasedly including the number of shares to DD.
• Responsibilities of the DD

1. For the Stock Exchange:

• A. coordination mechanism between depositories for sharing information regarding shareholding of the exchange and ensuring that the shareholding of trading members (TM)
• b. Monitor the overall TM holding limit
• c. Generate aggregated MT ownership reports
• d. Send alerts to the exchange and TMs
• e. Inform the stock market

2. Others: The other depository will provide the demat holdings of each TM on a daily basis,

• TMs, their associates and agents must obtain prior approval from the stock exchange(s) before acquiring additional shares, once the total shareholding of all TMs, their associates and agents exceeds the 45% conservative limit. .
• TMs, their associates and agents must also refer to the overall shareholding model under the category of TMs, their associates and agents.

3. For recognized clearing companies (CC)

• The DD will ensure that at least 51% of the paid-up share capital of a CC is always held by one or more recognized stock exchanges and no recognized stock exchange may, directly or indirectly, individually or jointly with persons. acting in concert, acquire or hold more than 15% of the paid-up share capital in more than one CC and take the correlative measures mentioned in paragraph 4.9 of this circular in the event of a breach

4. Fit and adequate

• All shareholders must be fit and proper persons at all times. For the shareholding of a person who, directly or indirectly, acquires or holds 2% or more of shares or voting rights of a stock exchange or a recognized depositary, the MII must ensure that these shareholders are fit and proper at all times.

• The MII notify on its website and take all measures to make investors aware of the conditions of eligibility for the acquisition or holding of its shares and the criteria of suitability and good repute.

• In the pre-listing scenario, the exchange and depository making a public offering must include a statement in the application form that the applicant is fit and proper.
• In the post-listing scenario, a reference to the applicable regulations regarding suitability and quality must be included in the contract note.
• The listed stock exchange and the listed depositary as well as the stock exchange where the shares are listed must indicate on their websites that the shares of the listed exchange and the listed depositary will only be dealt in by competent and competent persons.
• The MIIs will submit an exceptional report on incapacitated shareholders to SEBI on a quarterly basis.

5. Freezing of voting rights and benefits

• In the event of non-compliance with the criteria of fitness and good repute; and various threshold limits for holding of MII, the DD will apply freezing of ISIN level on the demat account of the concerned shareholder for excess holding and will inform the respective MII and RTA to disable e-voting for the account holder based on EoD.
• Regarding the freezing of voting rights, the DD will inform the MII, the RTA and the other depositary of the violation by the shareholders based on the EoD.

• Regarding employee benefits, the DD will inform the MII and other depositories based on the EoD of the list of shareholders whose employee benefits are to be frozen.
• Disinvestment of any excess stake in a listed MII beyond the specified limit would be done through a special window provided by the exchange where MII shares are listed.
• The stock exchange or depository submitting an application for listing of its securities to SEBI shall ensure strict compliance with Chapter VII of the SECC Regulations, 2018 and Chapter VIII of the D&P Regulations, 2018, respectively.

6. Applicability:

• The provisions of this circular will come into force from 90th dayy from the date of issue of the circular.

7. MII Advisor

• take the necessary measures and put in place the systems necessary to implement the above.
• Make necessary amendments to relevant laws, rules and regulations, where necessary, for the implementation of the above, bring the provisions of this Circular to the attention of market participants (including investors) and disseminate them on their website.