I do not subscribe to the views in the editorial, “Taking stock of exchanges” (November 25). In fact, some of the recommendations of the Bimal Jalan Committee defy logic and imply that the committee has suggested deliberate restrictions to protect the interests of the country’s most successful stock exchange. One of the key recommendations is related to the ownership of the stock exchange. At present, the MIMPS or Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges Regulations permit the following entities to hold up to 15 per cent, after seeking approval from the Securities and Exchange Board of India:
(i) Stock exchange
(ii) Depository
(iii) Clearing corporation
(iv) Banking company as defined under clause (c) of section 5 of the Banking Regulation Act, 1949
(v) Insurance company as defined under sub-section (8) of section 2 of the Insurance Act, 1938
(vi) Public financial institution defined under section 4A of the Companies Act, 1956.
The committee has recommended that only well-capitalised public financial institutions and banks be permitted to be the anchor institutional investors for stock exchanges. An anchor institutional investor has been described as an institution that will take the lead in setting up a stock exchange. These institutions alone will be allowed to hold an initial stake of 15 to 24 per cent. According to the committee’s recommendations, “A single anchor institutional investor may be permitted to hold up to 24 per cent of the total equity capital of an exchange, along with persons acting in concert.” This almost closes the doors for companies to enter the stock exchange arena. In this context, it is important to note that stock exchanges are a very profitable business, if the top line and bottom line of the National Stock Exchange (NSE) are any proof. Stock exchanges like NSE will continue to have a monopoly since MCX-SX has not been set up by anchor institutional investors. This means that in future we won’t see new stock exchanges coming up and even if they do, they will be promoted mostly by so-called government-backed institutions, which means there will no competition for NSE. So this recommendation gives the impression that the committee is encouraging a monopoly.
Also, the logic of allowing stock exchanges to hold a 24 per cent stake in depositories is hard to understand. After all, depositories are independent institutions and only facilitate the clearing and settlement of securities. Why should stock exchanges have any share in depositories? The two recommendations related to the ownership of stock exchanges and depositories need to be debated at length before they are accepted.
Vivek Sharma, Navi Mumbai
