Bimal Jalan, author of the report on the working of stock exchanges and other market infrastructure companies, expressed satisfaction over Sebi’s move to accept the recommendations made by him and his team. Edited excerpts of an interview with Palak Shah
Most of your recommendations have been accepted by Sebi, but the exchanges are not very happy. They feel it would lead to micro management. Your views?
I think Sebi has done a fine job. This is the best it could have done to make every market infrastructure institution accountable and see that our financial markets grow at a fast rate and in line with the real economy. Sebi has followed due process and considered all aspects to arrive at a decision which will promote growth of financial markets and stock exchanges. It will show a clear path for these institutions. Stock exchanges (SEs) are not private business; they are meant to ensure efficient functioning of financial markets, and they should be seen in that light. Sebi has allowed the listing of exchanges after three years of approval, while our report had recommended five years. This is fine as far as surveillance and regulatory functions of the exchanges are separated. This is what we had said. Sebi's view on allowing listing is consistent, as this has been made subject to certain conditions like paid-up capital and all. After these norms, SEs will work to the advantage of financial markets.
No ESOPs or equity-linked incentives for key employees of SEs, which is followed by every other industry today. Forget structuring of variable pay packages, Sebi will have a say even in fixed pay. Will the move not make it difficult to attract talent?
No. Sebi is not cutting back on pay, but is just saying one should go by industry standards and in accordance with the norms. In fact, there is a lot of criticism about fat pay packages in the US.
We want reasonable salaries, as a company should not run in the interest of those who are operating it. And, I think everybody agrees on this point in our country.
Will not the transfer of 25 per cent of profits of exchanges to various funds act like indirect cap on earnings?
I cannot comment on this issue. But, when my report had come, many had said the same thing, that cap on profits is not justified. In terms of regulatory framework, if our economy is doing well, then this move will be in the interest of our country.
Globally, exchanges are consolidating their business to become end-to-end solution providers. Here, there is a view that industry growth will be restricted due to excessive regulations. Won't survival be difficult for existing exchanges?
We must not look at SEs as a private property but as public interest infrastructure. We have laid down proper rules and these will not create hurdles, but will define a proper road. There is no limitation on the number of exchanges that can come, but they should act like instruments or platforms to promote trading, and not ends in themselves. The new rules will take care of the issue of conflict of interest and not prevent any institution from functioning. Be it depositories, stock exchanges or clearing corporations, they can be owned by the majority as per the stipulated norms set by stock exchanges. What is wrong with it? Wall Street is also thinking about more regulations and review, as it has been terrorised by recent crises. We have done it to safeguard our economy from crises and all these norms are subject to review. Sebi's decisions seem reasonable in terms of transparency and accountability. When stringent norms were not there, where was the growth of the stock exchange industry some five to six years ago? Everything is subject to review, and our markets should work in the interest of retail investors.
When will be the correct time to review these norms?
Our report had recommended all these norms be reviewed after three years. It doesn't matter if it is done after two years. It is a constant process, as our markets are changing very fast, and we should make sure they work in the interest of investors and companies, which, in turn, are accountable to people investing in them.