On 5-8-2025, the Securities and Exchange Board of India (‘SEBI’) circulated a notification titled ‘Review, Appeal or Waiver of penalty requests emanating out of actions taken by the Member Committee’. This notification introduces a revised framework directing Market Infrastructure Institutions (‘MIIs’) regarding how to handle requests related to penalties imposed through their regulatory processes. The circular aims to improve transparency, reduce conflicts of interest, and ensure fair treatment for market participants. The provisions of the circular will come into effect 45 days from its issuance of circular, i.e., on 19-9-2025.
Key Points:
- A Market Infrastructure Institution (MII) refers to a key organization that supports and regulates the operations of financial markets, which includes:
- stock exchanges
- clearing houses
- depositories
- SEBI, while referring to the Terms of Reference (‘ToR’) for statutory committees of MIIs as outlined in its Master Circulars dated 3-12- 2024, stated that previously, these ToRs required all requests for review, appeal, or waiver of penalties, irrespective of the authority that imposed them, were to be submitted before the Member Committee (‘MC’) of the respective MII.
- This structure raised concerns about potential conflicts of interest, as the same committee responsible for imposing penalties was also tasked with reviewing them, challenging the impartiality of reviewing system.
- After receiving input from MIIs and consulting with SEBI’s Secondary Market Advisory Committee (‘SMAC’), the regulator has now introduced a dual-track system to address these concerns.
- According to the revised framework, if a penalty is imposed by the Internal Committee (‘IC’) of the MC or by the MII under a pre-approved policy on regulatory action, the request for review, appeal, or waiver will continue to be placed before the Member Committee.
- If the penalty is imposed directly by the Member Committee itself, the request will be handled by a separate mechanism established by the Governing Board of the MII.
- This new mechanism will include Public Interest Directors (‘PIDs’) and/or Independent External Professionals who are not part of the MC.
- The Governing Board is also required to issue a Standard Operating Procedure (‘SOP’) to ensure consistency and procedural clarity in handling such cases.
- The circular clarifies that if a member or participant is dissatisfied with the outcome of the internal appeal process, they retain the right to approach appropriate legal authorities under applicable laws to ensure that the new framework does not restrict access to judicial remedies.
- SEBI has directed all MIIs to implement the necessary systems and procedures, amend relevant byelaws and regulations, and disseminate the circular and its implications to market participants through their websites.
