In a move to further bolster transparency and efficiency within the Indian securities market, the Securities and Exchange Board of India (SEBI) issued a fresh circular on August 5, 2025, titled “Review, Appeal or Waiver of Penalty Requests Emanating out of Actions Taken by the Member Committee.” This circular is applicable to all recognized stock exchanges, clearing corporations, and depositories—collectively known as Market Infrastructure Institutions (MIIs).
Background: The Role of Member Committees
SEBI had earlier laid down the Terms of Reference (ToR) for statutory committees within MIIs through its Master Circulars in December 2024. A key responsibility assigned to the Member Committee (MC) under these ToRs was to consider any request for review, appeal, or waiver of penalties imposed by MIIs or their internal bodies.
However, over time, SEBI received feedback from MIIs and engaged with the Secondary Market Advisory Committee (SMAC) to examine the need for a more structured and independent framework for handling such requests.
What’s New? Key Modifications Introduced
This latest circular introduces significant changes aimed at reinforcing fairness and reducing conflicts of interest in penalty-related decision-making:
- Expanded Scope of Review by MC
Previously, the MC was responsible for reviewing all appeals and waiver requests. Now, any such requests against actions taken by the Internal Committee (IC) of the MC or actions taken by the MII based on a pre-approved regulatory action policy will be placed before the MC for review.
- Independent Mechanism for Reviewing MC Decisions
A major shift comes in the form of a new review framework for appeals against the MC itself. SEBI now mandates that any such requests be handled by a separate mechanism to be established by the Governing Board of the MII. This mechanism must include:
Public Interest Directors (PIDs), and/or
Independent External Professionals not part of the original MC.
The Governing Board is also responsible for issuing a Standard Operating Procedure (SOP) to guide the process, ensuring clarity, consistency, and neutrality.
- Right to Further Appeal
If a party remains aggrieved even after this review process, they retain the right to approach the appropriate legal or regulatory authority, as per applicable laws. This ensures that all stakeholders have continued access to justice and due process.
Implementation Timeline and Compliance
The new provisions will come into effect 45 days from the date of the circular, giving MIIs sufficient time to adapt. SEBI has instructed all MIIs to:
Take necessary internal steps for smooth implementation.
Amend relevant bye-laws, rules, and regulations where needed.
Communicate the changes clearly to market participants, including publishing the circular on their official websites.
Conclusion
SEBI’s proactive changes demonstrate its commitment to strengthening governance and investor confidence within the Indian capital markets. By introducing an independent appellate mechanism, the regulator is addressing concerns of impartiality and ensuring that reviews of penalty decisions are both fair and credible. As these updates come into effect, MIIs and market participants alike will need to adapt to this enhanced compliance landscape.