Board meets today to discuss the report and give its final views to Sebi.
The Bombay Stock Exchange (BSE) board members will oppose the suggestions of the seven-member Bimal Jalan committee, which last month gave its report on the working and ownership norms for market infrastructure companies.
The board would meet tomorrow to discuss the report and give their final views to the Securities and Exchange Board of India (Sebi) early next week, informed an official. The meeting will also be attended by representatives of Frankfurt-headquartered Deutsche Borse, which holds five per cent in BSE.
“The mood among BSE board members is against the Jalan report. We will voice our strong opposition to the regulator. If the report is accepted, the exchange will not only lose the confidence of large investors but talent too," said a board member of Asia's oldest bourse.
Among the key recommendations thought to hurt BSE the most are not allowing market infrastructure companies to list, capping their profits, restricting the role of anchor investors to only domestic banks, insurance companies and other public financial institutions having a net worth of at least Rs 1,000 crore and allowing only fixed pay, without variables linked to commercial performance.
BSE has just over one per cent market share. On an average, equity derivatives worth Rs 1,00,000 crore are traded daily on the National Stock Exchange (NSE). BSE has made several attempts to crack the segment. The exchange decided to rope in either a large US or European derivatives bourse as its anchor investor and a strategic partner to take on NSE. This may now hit a block. BSE was planing to launch its initial public offering by March.
‘RETROGRADE’
“The Jalan report is pushing India back to the era of a closed economy. Looking at the thought process of Indian policy makers, I’ve temporarily cancelled other investment plans in the country,” said Thomas Caldwell, chairman of Toronto-based Caldwell Financial, which owns over four per cent in BSE.
Caldwell says listed exchanges are more transparent and efficient in tackling competition.
“The NYSE (New York Stock Exchange) revamped its systems, caught up with competition and speed of execution, reduced costs, developed new products, expanded across the globe to become a world leader after it went public,” he said.
Adding: “Once listed, companies are accountable and strive for efficiency and innovation. Also, they have currency to expand and attract better talent.”
‘Appropriate’
Defending the report, J N Gupta, a member of the Jalan committee and executive director of Sebi, felt the time was not right for Indian exchanges to list and allow foreign investors to increase stake in them.
“There is a difference of opinion on what we understand about MIIs (Market Infrastructure Institutions) and their functioning. The committee clarified that these institutions are systemically important, so it is necessary to cap profits and restrict their holding. If investors are not happy with reasonable profit, they better not invest in them,” Gupta said, while at a conference yesterday.
“We do not want to follow the US model in this segment. Exchanges are first-line regulators. Unlike any other commercial entity, they are also responsible for investor protection. We cannot make a policy suiting a few institutions and ignore public good,” said Gupta.
Among other things, BSE will have to bring down its holding in the Central Depository Services from the current 54 per cent to 24 per cent in three years and infuse another Rs 200 crore to raise the net worth of its clearing house, to met the criteria suggested by the Jalan report. The exchange was consolidating its depository and clearing business to achieve cost efficiencies and project itself as an end-to-end solution provider to attract traders.
