The move to bring about a framework for listing shares on an exchange under the so-called permitted-to-trade category has been put on the back-burner by the Securities and Exchange Board of India (Sebi). It was much discussed among industry players after talks first surfaced in mid-December 2012.
Under the permitted category, an exchange can admit to direct trading of stocks listed on another exchange. The provision for this is present in the Securities Contracts (Regulation) Act. However, exchanges do not have to follow specific rules while picking up companies to trade on their platforms. Also, companies are only bound to share information and comply with regulations of the exchange with which they have a listing agreement.
The National Stock Exchange (NSE), on its inception, had admitted several companies listed on BSE for direct trading on its platform under the permitted category. Then, NSE had 100 companies on the basis of certain performance-linked parameters. Even the most recent example of NSE allowing trading under the category was that of Multi Commodity Exchange (MCX), which decided to list only on BSE. Fearing a loss of trading volumes, which are usually high on the first few days after listing of any big public issue, NSE decided for direct listing of MCX on its platform.
According to regulatory sources, one of the key criteria that market regulator Sebi was planning to introduce as a framework for the permitted category was that of information sharing by companies with exchanges. There was a view that companies should not limit themselves from sharing information with the exchange with which they have a listing agreement. For more transparency and convenience, Sebi officials felt companies should also share information with the exchanges where they are traded. This has not gone down well with many top companies, which believe such compliance is an unnecessary burden when they were disseminating information to a nationally recognised exchange.
An official from the Confederation of Indian Industry said such norms would be challenged in court. “You cannot force any company to share information with any entity or regulator if it is not legally bound to do so. No company wants to bear the burden of additional compliance when it’s just mindless,” said the official, who did not want to be named.
As of now, BSE has 74 companies under the permitted category and NSE has five. During early 2000, when a leading exchange had said it would discontinue with trading on several companies under the permitted category for not sharing information, there was a controversy.
The third national level exchange, MCX-SX, is gearing up for the launch of equity trading on its platform. MCX-SX has already announced commencement of operations with 1,200 listed companies. Market experts believe all these may be directly listed on MCX-SX under the permitted-to-trade category. Also, the issue is crucial as a couple of regional exchanges are planning a revival.