Market Infrastructure Institution (MII Detailed)
A Market Infrastructure Institution (MII) under SEBI's regulatory framework encompasses recognised stock exchanges, clearing corporations, and depositories — the three types of entities forming the critical infrastructure of India's securities market — each subject to specialised governance, net worth, technology, and ownership requirements that distinguish them from ordinary SEBI-regulated intermediaries.
The term MII was formally articulated in SEBI's comprehensive circular on governance norms for market infrastructure institutions, most significantly through the report of the Bimal Jalan Committee in 2010 and subsequent SEBI circulars. The three categories of MII in India were: (1) recognised stock exchanges — NSE, BSE, MCX, NCDEX, MSE, and others; (2) clearing corporations — NSE Clearing Limited (formerly NSCCL), Indian Clearing Corporation Limited (ICCL for BSE), and MCX-SX Clearing Corporation; and (3) depositories — NSDL and CDSL.
Each MII category served a distinct but interdependent function. Exchanges provided the trading platform and price discovery mechanism. Clearing corporations interposed between buyers and sellers as central counterparties, guaranteeing trade settlement and managing counterparty credit risk. Depositories held dematerialised securities in electronic form and facilitated the transfer of ownership upon settlement.
Net worth requirements reflected the systemic importance of MIIs. Recognised stock exchanges were required to maintain minimum net worth of Rs 100 crore. Clearing corporations, by virtue of their role as central counterparties absorbing settlement risk, faced more demanding standards including contribution to Settlement Guarantee Funds and skin-in-the-game requirements where the clearing corporation's own funds ranked junior to member contributions in default waterfalls. NSDL and CDSL were required to meet minimum net worth thresholds reviewed periodically by SEBI.
Ownership restrictions were stricter for MIIs than for other SEBI-regulated entities. The 15% per-person cap on shareholding in exchanges, and similar restrictions on clearing corporations and depositories, reflected the public interest nature of market infrastructure. Foreign exchanges, foreign depositories, and foreign clearing corporations could hold stakes subject to foreign investment limits in each category. SEBI approval was required for any transfer of shares in an MII above specified thresholds.
Technology reliability standards for MIIs were regulated through SEBI circulars on technology governance, requiring annual system audits, disaster recovery site maintenance, recovery time objectives (RTO) and recovery point objectives (RPO) for trading and settlement systems, and mandatory reporting of technology failures above a specified downtime threshold.
MIIs were not permitted to distribute profits beyond a specified level as dividends; a portion of profits was required to be retained and contributed to investor protection funds, settlement guarantee funds, and technology upgradation reserves.