This refers to the interview with Bimal Jalan (July 1), who heads the Sebi committee on ownership and governance of market infrastructure institutions (MIIs). The recommendations of the committee may play a pivotal role in the formulation of Sebi policy towards MIIs, which are responsible for the development of the financial market. Stock exchanges, clearing houses and depository service providers are the principal MIIs in India. Among other things, the committee has the task of recommending reform measures in regard to ownership of stock exchanges and clearing corporations, board composition, listing and governance norms of MIIs, the balance between the regulatory and business functions of stock exchanges and a competition policy for stock exchanges. Each of these issues is contentious and lacks a straight answer. Dr Jalan has the scholarship to assimilate divergent views and come out with recommendations that are pragmatic, unbiased and forward-looking. However, a few basic canons of economics must be adhered to.
Greater competition must be encouraged in the capital market, as it would lower transaction costs and incentivise product/process innovation. Benefits to investors would increase and monopoly rents would be curtailed. Anchor investors must be permitted to hold adequate ownership stakes in MIIs. The ownership stake must be enough to align the interest of the promoter with the entity it is promoting. If 20 investors have equal shareholdings (5 per cent each), it may induce a “moral hazard” problem. Why would “A” put in extra effort, when he/she knows that the outcome would be distributed equally? Moreover, if “B” considers this investment a mere fraction of his investment portfolio, can he/she put in earnest effort and strategise the business? Needless to say, bringing the common man into the fold of the securities market requires commitment, perseverance and investment, which would not come from a disengaged entrepreneur. Adequate safeguards in terms of having a large number of shareholder-directors, public-interest directors or Sebi nominee-directors should be considered to avoid any possible misuse of power by dominant owner(s). Sebi has a great track record as a regulator. It should continue to remain vigilant, as it is today.
Satyanarayan Gupta, New Delhi
