BSE dons corporate garb

Voting rights of a single broker capped at 5%.

The Bombay Stock Exchange (BSE) corporatisation scheme, cleared by the Securities and Exchange Board of India (Sebi) today, caps the voting rights of a single broker at 5 per cent. The scheme, which has been notified, comes into effect immediately.

The chief executive of the exchange will be an ex-officio director. The capital market watchdog has overriding powers and can nominate directors to the governing board as and when deemed fit.

The composition of the governing board would ensure that the representation of brokers did not exceed one-fourth of its total strength, Sebi said.

According to the scheme, 50 members selected by the governing board of the BSE, called the first shareholders, will incorporate a public company limited by shares. Each of these shareholders will subscribe to and pay for 10,000 fully paid-up equity shares with a face value of Re 1 each.

Every member, with more than one membership card as on the record date, will be entitled to an additional 10,000 fully paid-up equity shares of Re 1 face value for every additional membership card held by them.

The scheme also provides for listing of the securities of the BSE on any stock exchange, including itself. All assets of any type "" including those belonging to the members "" will stand transferred in the name of the new entity, the Bombay Stock Exchange Ltd.

All obligations and liabilities of the BSE will be transferred to the new corporate entity.

Under the scheme, the assets and reserves cannot be utilised by the exchange for purposes other than the business operations of the exchange.

The BSE Ltd will have to ensure that at least 51 per cent of its equity shares are held by public other than shareholders having trading rights.

Within one year of the due date, the new entity will transfer the duties and functions of the clearing house of the BSE Ltd to a clearing corporation.

Until the duties and functions of the clearing house are transferred, the clearing and settlement functions in relation to trading on the exchange will be carried out by the clearing and settlement mechanism as used by the BSE in the current format.

Brokers, however, were not too happy with the clause in the BSE corporatisation scheme which says that 'the assets and reserves (of the exchange) cannot be utilised for purposes other than the business operations' has not gone down well with the 700-odd members of the exchange.

Brokers said it would deprive them of the reserve that they had created over the last 125 years and would also hit the valuation of the stock exchange.

'No company will be too keen to buy a stake in BSE Ltd as it deprives them of any claim on the reserves,' a leading broker said.

Officially, however, all brokers welcomed the Sebi move to clear the way for the demutalisation of the stock exchange.

The Bombay Stock Exchange Ltd is looking for strategic investors, considering a public issue and is planning to spin off its special businesses into separate subsidiaries.

'Overseas exchanges, mutual funds and even some of the foreign institutional investors (FIIs) are interested in picking up stakes in BSE Ltd,' said sources close to the developments.

The sources said the exchange had already held informal roadshows and one Singapore based FII was believed to have shown interest.

A valuation exercise has already been kicked off and the new corporate entity will follow the model adopted by the Singapore and Malaysian stock exchanges for selling of stakes. 'All depends on the foreign direct investment (FDI) norms for the exchange. Since there is no precedent, it will be a test case,' said sources, adding: 'It may take about a year or so to rope in strategic investors,' said sources.

Another offshoot of the corporatisation move will be floatation of subsidiaries by BSE Ltd. 'The exchange may spin off its special businesses like index services and even training institute as subsidiaries. It will look for equity tieup from overseas entities in all these outfits,' the sources said.

In 2003-04, the BSE earned a surplus of Rs 51.23 crore on a total revenue of Rs 151.51 crore. Its net worth as on March 31, 2004, stood at Rs 741 crore.

The exchange will now have to pay income tax.

BSE Ltd fact file

• At least 51% stake will be held by non-brokers
• Voting rights of a single broker capped at 5%
• Each broker to get 10,000 shares of Re 1 face value
• Sebi will have overriding powers and can nominate directors