SEBI Proposes Automatic Approval Route for Market Infrastructure Institutions to Expand into Data and Tech Services

Stock exchanges and depositories could soon gain greater flexibility to expand into business segments such as market data, analytics, and technology services. A proposal introduced by the Securities and Exchange Board of India (SEBI) seeks to allow operating subsidiaries of market infrastructure institutions (MIIs) to reinvest their earnings in related activities without requiring prior regulatory approval for each instance.

The proposed framework introduces an automatic approval route for specified activities that are considered related or incidental to an MII's core functions. These include operations undertaken at the regulator's direction, specific share transfers between an MII and its subsidiaries, and the deployment of funds by operating subsidiaries exclusively from earnings generated through their own operations. The proposal also covers activities conducted via investee companies regulated by other financial-sector regulators, provided SEBI has previously approved the activity and its scope remains unchanged.

Nikunj Saraf, CEO of Choice Wealth, noted that the operational benefits include a shorter time-to-market, board-level accountability replacing central pre-clearance, and the ability to monetise existing data and infrastructure assets.

Legal experts have highlighted the operational and governance implications of the proposed framework. Vanya Singh, Partner at Cyril Amarchand Mangaldas, stated that MII governing boards will need to establish appropriate boundaries to give subsidiaries operational flexibility while maintaining strict oversight. Hardeep Sachdeva, Senior Partner at AZB & Partners, added that the relaxation could enable institutions to respond more efficiently to evolving market requirements and optimise capital deployment.

Despite the potential operational efficiencies, the framework incorporates specific safeguards to address the risk of commercial interests interfering with regulatory responsibilities. Under the proposal, an MII’s governing board must approve each new activity or fund deployment to ensure it does not conflict with core market functions or compromise resources required for technology upgrades, regulatory obligations, and investor protection. Additional mandates include arm’s-length arrangements, ring-fencing of shared resources, fit-and-proper compliance, and half-yearly reporting to SEBI.

Legal professionals have pointed out that financial safeguards alone may not entirely mitigate potential governance concerns. Tushar Kumar, Advocate at the Supreme Court of India, noted that conflicts arising from preferential access, information asymmetry, or competing institutional incentives require careful consideration. Burzin Bharucha, Partner at White & Brief, emphasized the need for a clear separation between an MII’s commercial and regulatory functions, with SEBI retaining intervention rights to protect market integrity and investor interests.

The proposed automatic route will not apply to recognised clearing corporations. Any activities falling outside the specified categories will continue to require prior approval from SEBI.

"SEBI's proposal to streamline approvals for market infrastructure institutions represents a practical step toward operational efficiency and data monetization. However, as exchanges and depositories expand into commercial technology and analytics businesses, establishing robust internal governance and strict Chinese walls between commercial pursuits and regulatory duties will be critical to maintaining market integrity and investor trust." — Dr. Shishir Gupta, Founder & CEO, StartupLanes