Listing, ownership sections keenly awaited; to also rule on pay for brass.
The Bimal Jalan committee report, which is supposed to set a road map for ownership and working of capital market infrastructure institutions (MIIs), will be submitted in November, according to a committee member.
The report is widely awaited in view of the Securities and Exchange Board of India (Sebi) rejecting the application of the MCX-SX to operate as a full-fledged stock exchange. Sebi said the exchange did not have well-diversified ownership.
The committee was set up by Sebi last year. Its key aim was to sort out the conflict of interest between stock exchanges as regulatory bodies and as ‘for-profit’ organisations. The National Stock Exchange (NSE), which has over 90 per cent equity market share, is also one of the most profitable companies, with a net of over Rs 600 crore as on March.
A member said the final meeting of the committee would be held in the first week of November. The committee, headed by Jalan, the former Reserve Bank of India governor, had sought suggestions and comments from market participants and the public till May 10.
Other members of the committee are former joint secretary in the finance ministry, K P Krishnan, Tata Industries’ MD Kishor Chaukar, Kotak Mahindra Bank MD Uday Kotak, National Institute of Securities Markets’ officer on special duty G Sethu, and Sebi’s J N Gupta and K M Abraham.
Jalan told Business Standard, “We will ensure a balance between regulation and freedom to operate for exchanges, depositories and clearing corporations.”
One of the key recommendations of the committee will be on allowing stock exchanges to list. However, this will come with norms on how much a particular class of investors can own.
“Listing of stock exchanges will bring more transparency, as they don't even come under the Right To Information Act. Exchanges will be allowed to list on their own platforms, but the criteria will ensure that the bourse is well-diversified. Holding norms for different classes of investors will be specified,” said another committee member.
While NSE is silent on listing, the Bombay Stock Exchange plans to launch its initial public offer around April next year. Almost all top exchanges including the London Stock Exchange, NYSE and those in Australia and Singapore, are listed on their own platforms. Globally, listed exchanges account for over 70 per cent equity turnover, according to a report by Ruben Lee, CEO and founder of Oxford Finance Group.
While market participants are divided on whether stock exchanges should have a diversified ownership structure, committee sources say it is one issue on which they will not be lenient. They intend to make sure the ownership is well-diversified, even if the exchange is listed.
“This will ensure that exchanges not only operate for profit maximisation but are ultimately public utilities. It is a means of good governance,” said the member.
The committee had also sought views on classes of entities that could be permitted to be anchor investors. And, if there should be lock-ins for them. At present, those that can buy up to 15 per cent in a stock exchange include domestic banks and financial institutions, clearing corporations, depositories and stock exchanges.
Market players have demanded this limit be raised to 25 per cent, to bring it in line with the new takeover norms.
Market participants were also asked to give views on whether foreign stock exchanges could be permitted to hold up to 15 per cent or more equity in Indian stock exchanges. The committee will also specify shareholding norms in depositories. Recently, BSE raised stake in Central Depository Services Ltd to 51 per cent, while NSE holds a little over 25 per cent in National Depository Services Ltd. The exchanges are in a race to provide end-to-end solutions to clients.
The committee had also invited comments on whether there should be separate requirements for foreign and domestic qualified institutional buyers for participating in primary issues of stock exchanges, and if they should be granted positions on boards. At present, foreign stock exchanges or investors can hold not more than five per cent individually in a stock exchange. Deutsche Bourse and Singapore Exchange own five per cent each in BSE and have a representative on the board.
The committee will also make a suggestion on compensation to the stock exchange brass (NSE’s top bosses are among the highest paid executives in India).
