Foreigners can buy 49% in Indian bourses

Stock exchanges, depositories and clearing corporations can now have foreign shareholding of up to 49 per cent, with a sub-ceiling of 26 per cent for foreign direct investment (FDI) and 23 per cent for foreign institutional investors (FIIs).

Notifying the foreign investment ceilings for these "infrastructure companies in securities markets," the Reserve Bank of India (RBI) today said such shareholding had to be in compliance with the regulations of the Securities and Exchange Board of India (SEBI).

SEBI separately sent a circular to stock exchanges, depositories and custodians, stating that no foreign investor, including persons acting in concert, could hold more than 5 per cent equity in these infrastructure companies in the securities markets.

SEBI also made it clear that FIIs would not get representation on the board of directors of any of these companies.

However, market players appeared confused at the applicability of the 5 per cent ceiling for depositories and clearing corporations. They expected SEBI to clarify the exact position later.

"The situation is now clear. The exchanges know how much they will be offering to foreign players. Many global players have already evinced interest in being strategic partners of the BSE. I think the BSE will now find it easy to go ahead with these proposals," Dina Mehta, a former BSE vice-president, said.

Analysts expect that foreign strategic partners will still be interested in buying a 5 per cent stake in exchanges, in anticipation of further liberalisation of policies.

The New York Stock Exchange and the London Stock Exchange are clear contenders for acquiring stakes in the BSE.

FDI in these securities market companies will be subject to specific prior approval of the Foreign Investment Promotion Board (FIPB).

FIIs will be allowed to buy shares of the securities market entities only from the secondary market, which rules out pre-IPO allotment, one of the options being considered by the Bombay Stock Exchange. This sets at rest speculation over the manner in which FIIs will be allowed to buy shares of stock exchanges.

None of the two depositories "" National Securities Depositories Ltd and Central Depositories Services Ltd "" and the clearing corporations "" CCIL and the ones set up by BSE and the National Stock Exchange "" have any plans to raise capital.

An official of one of the companies said their promoters would now find it simpler to find buyers for their stakes.