SEBI proposal may open up data, technology businesses for exchanges, depositories

The Securities and Exchange Board of India (SEBI) has proposed a new framework that could allow stock exchanges and depositories to expand into related businesses such as market data, analytics, and technology services through their operating subsidiaries. Under this proposal, these subsidiaries would be able to reinvest their earnings in such activities without needing fresh regulatory approval.

This could enable market infrastructure institutions (MIIs) to better utilize their existing infrastructure and capabilities, while also reducing the approval burden for activities that directly support market operations. The deregulation could lead to shorter time-to-market, board-level accountability, and the ability to monetize deep data and infrastructure that these institutions already own.

However, the proposal also requires the establishment of safeguards to prevent conflicts of interest and ensure that commercial interests do not interfere with the regulatory responsibilities of exchanges and depositories. These safeguards include arm's-length arrangements, ring-fencing of shared resources, fit-and-proper compliance, and half-yearly reporting to SEBI.

While the proposal aims to optimise capital deployment and pursue operational synergies, it is crucial to strike a balance between allowing flexibility for subsidiaries and maintaining the regulatory oversight needed for market integrity and investor protection. The proposal does not extend to recognised clearing corporations, and activities outside the specified categories would still require prior SEBI approval.