Smaller exchanges will find it difficult to fulfil the new minimum networth criteria of Rs 100 crore set by the equity markets regulator, the Securities and Exchange Board of India (Sebi), according to the Federation of Indian Stock Exchanges (FISE), which represents the 15 regional stock exchanges (RSEs).
According to the new set of norms unveiled by the market regulator on Monday for market infrastructure institutions (MIIs), stock exchanges would be given three years to achieve minimum networth of Rs 100 crore.
“Some of the policy initiatives like fulfiling of minimum networth of Rs 100 crore within three years would lead RSEs involuntarily to their compulsory closure or de-recognition,” said B K Sabharwal, chairman of FISE. “This will harm the interests of their trading members, small and medium enterprises that had listed their stocks with them, their stakeholders and also the small investors all over the country,” he added.
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Sebi’s policy might push some RSEs to look for mergers among themselves or head for the exit route, Sabharwal said.
Among the 15 Sebi-recognised RSEs are the Ahmedabad Stock Exchange, Bangalore Stock Exchange, Calcutta Stock Exchange and Delhi Stock Exchange. Hardly any trading takes place on most of these.
According to an FISE statement, RSEs had moved towards demutualisation during 2007-08 and invited public participation. “Many new investors moved in, as the exchanges had indicated chances of revival. Most of these investors paid a premium to acquire equity stakes in the regional stock exchanges. Today, they feel let down by the new policy initiative,” FISE said.
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The corporatisation and demutualisation of stock exchanges, mandated by Sebi in 2004, required that at least 51 per cent of shares be held by non-trading members.
Sebi’s move to disallow trading members on the boards of exchanges has also not gone down well with smaller ones.
According to them, the present governing structure wherein they have only 25 per cent representation could have continued. “As trading members remain the potential drivers of the capital market, their absence on the boards may affect the business policies of the stock exchanges,” FISE said.
The regulator has said the boards of stock exchanges will constitute an advisory committee comprising trading members to benefit from their experience. All recommendations of this committee will have to be placed in the ensuing board meeting for consideration.