Capital markets regulator Sebi has tweaked its framework regarding 'fit and proper' criteria for stock exchanges and other market infrastructure institutions, whereby any direction passed against such institutions will not affect their operations.

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The new rules are aimed at separating the role of an individual from such institutions.

In two separate notifications, the Securities and Exchange Board of India (Sebi) said that 'fit and proper person' criteria will apply to the applicant, stock exchange, clearing corporation, depository, their shareholders, directors and key management personnel at all times.

Further, such Market Infrastructure Institutions (MIIs) will have to ensure that all its shareholders, directors and key management personnel are fit and proper persons at all times.

If any director or key management personnel of a MII is not deemed to be fit and proper, such entities will have to replace such a person within 30 days from the date of such disqualification, failing which the fit and proper person criteria may be invoked against the MII, as per the notifications issued on August 22.

Further, any disqualification of a MII will not have any bearing on the fit and proper status of the directors or key management personnel unless the directors or key management personnel are also found to incur the same disqualification in the said matter.

"Any order passed by the board against a recognised stock exchange or recognised clearing corporation shall not affect the operation of such recognised stock exchange or recognised clearing corporation unless expressly mentioned in the order," Sebi said.

An applicant has to meet certain criteria to be fit and proper. Those requirements include financial integrity, good reputation, honesty; no conviction in any court for any offence, or any other order like that of restraining by Sebi.

The regulator has amended Securities Contracts rules as well as depositories participants rules.

In November 2021, Sebi altered the criteria to determine 'fit and proper person'. It was principle-based and/or rule-based.

The principle-based criteria include integrity, honesty, ethical behaviour, reputation, fairness, and character, according to the notification. Further, the rule-based norms determine the 'fit and proper' status of the person based on the disqualifications stated by Sebi.