Market regulator Securities and Exchange Board of India (Sebi) on Monday allowed the listing of shares of stock exchanges on other stock exchanges, subject to several conditions. It also laid down provisions to form an independent governance committee that will have a significant say in the regulatory functions of the exchange such as listing, trading and surveillance.
The officials who handle these governance functions will have dual reporting to the managing director and chief executive officer of the exchange and the independent committee, according to the regulator.
Independent directors would form the majority of the committee and one of them would head it.
The moves came after Sebi considered the controversial Bimal Jalan committee report on market infrastructure institutions (MIIs), such as stock exchanges, clearing corporations and depositories, which among other things had advocated against the listing of such entities and recommended capping of their profits.
Nearly 17 months after the report was submitted to Sebi, these two controversial proposals have been effectively dropped, which could see the two stock exchanges, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), start preparations to list. However, since the rules prohibit an exchange from listing on itself, they could explore options of listing on each other.
Several marquee institutions, such as Goldman Sachs and Softbank Asian Infrastructure Fund, which have bought shares in the exchanges, will have an opportunity to unlock value.
The listing will also help a number of broker shareholders, who hold significant chunks of BSE shares.
Sebi has allowed bourses to list after three years from the date of getting its approval. Exchanges will not be allowed to list on themselves and will have to put in place mechanisms for tackling conflicts of interest,” Sebi said in a press release.
The regulator has mandated stock exchanges to transfer 25 per cent of their profits to the Settlement Guarantee Fund of the clearing corporation, where their trades are settled. In case of a depository, 25 per cent of the profits will have to be transferred to their Investor Protection Fund. According to the seven-member committee's recommendations, Sebi has prescribed a net worth of Rs 100 crore for stock exchanges and depositories and Rs 300 crore for clearing corporations. The regulator, however, will give existing MIIs three years to achieve the net worth requirements.
Shareholding structure
In a decision, which will have a direct impact on MCX-SX, Sebi has said shareholding caps for investors will also include off balance-sheet items.
“The shareholding limits prescribed for each category of investors shall be inclusive of all exposure of a shareholder to the MII that facilitates or permits equity or rights over equity at any future date,” the release said.
To have diversified ownership, Sebi has said no single investor can hold five per cent in a stock exchange, except public institutions, insurances companies and banks, which could hold up to 15 per cent. Exchanges will need to maintain 51 per cent public shareholding.
In case of clearing corporations, a stock exchange will need to hold 51 per cent stake. Those exchanges holding more than the mandated 51 per cent shall be given three years to bring down their stake. Other institutions' shareholding will be capped at five per cent and 15 per cent, like in the case of stock exchanges.
“A stock exchange holding 51 per cent in a clearing corporation cannot hold more than 15 per cent in any other clearing corporation,” Sebi said.
If any shareholder has exposure more than the prescribed limit of shareholding, it will have to be reduced to the permissible limit within a period which may extend up to three years from the date of Sebi approval. The voting rights of no shareholder will, however, exceed the prescribed maximum shareholding limit at any point in time.
