Iosco meet to discuss governance

Securities markets regulators, representing various global stock exchanges, will discuss the governance issues created by the rapid consolidation of the worldwide stock exchanges, at the annual four-day meet of the International Organisation of Securities Commission (Iosco) starting here from Monday.

Global stock exchanges such as the New York Stock Exchange (NYSE), London Stock Exchange (LSE) and Deutsche Boerse are pursuing an aggressive and inorganic growth strategy in other economies than expanding their business by attracting more listings from these regions. Consolidation has become the most preferred route for the global players, as they are entering the newly growing markets such as Asian exchanges at an early stage by buying a stake in these stock exchanges.

"We would be discussing how the ownership patterns of the stock exchanges are changing. Regulators have to cope with these changes. With the consolidation of the stock exchanges, the regulators have to work on exploring options such as whether there could be an universal format of regulations or how to deal with the issues such has different regulations followed in different stock exchanges," a senior Sebi official.

The Iosco meet will have a brief session on the issue.

Ownership rules in stock exchanges vary from markets to markets. In Hong Kong, a foreign bourse is not allowed to own more than 5 per cent. In Singapore, the foreign exchanges are not allowed to own more 10 per cent in Singapore Stock Exchange (SGX). In India, a single foreign entity is not allowed to own more than five per cent stake. NYSE has taken 5 per cent stake in National Stock Exchange while Deutsche Boerse and SGX have taken 5 per cent stake each in the Bombay Stock Exchange.

The recent merger of the NYSE and European Exchange operator Euronext NV, formed the world's biggest and first trans-Atlantic stock exchange `NYSE-Euronext'. The new entity now wants to attract Chinese and other Asian companies for listings. Besides, it also plans to incorporate small-sized companies, especially the Russian firms, from going to LSE's AIM market for fund raising.

"Overseas exchange acquisitions are easier to envisage in the US (single market) or Europe (harmonised currencies, platforms) than Asia. Asian markets are heterogenous and exchanges are still considered "national preserves," according to a recent Deutsche Bank report.

With the global consolidation wave, the regulators are facing issues, such as if a firm, which is not able to comply with the norms of one of the partner exchange but fits in the regulatory framework of other exchange, then how these issues would be treated and whether there should be separate treatment of such companies.

The consolidation wave is more into European countries, which have less regulatory issues for foreign investments, as compared to emerging markets.

Deutsche Boerse has already signalled its readiness to play a big role in consolidations taking place in European stock exchanges.