Ownership of exchanges needs more study: Damodaran

The process of demutualisation of stock exchanges will have to hang fire for a little while longer, as the Securities Exchange Board Of Indi...

The process of demutualisation of stock exchanges will have to hang fire for a little while longer, as the Securities Exchange Board Of India Sebi has set up a committee headed by Board member G Anantharaman to look into the issues of ownership of stock exchanges.

Sebi Chairman M Damodaran today said that the issue of ownership was 8216;the mother issue in the demutualisation process.8217;

Stressing that the role of the stock exchanges as a first-level regulator for listed companies is not understood enough, Damodaran said that there are several issues that need to be resolved before demutualisation can be carried forward.

8216;8216;Demutualisation has been done in other countries8217; stock exchanges not so long ago. Australia, the first country to kick off the process, hasn8217;t found solutions to all the problems. If demutualisation was a perfect solution for ownership problems, we8217;d have seen it long ago,8221; he said.

8216;8216;Because of the criticality of an exchange8217;s role, you need to be clear who can own them8212;foreigners or entities with track record, other exchanges or Indian broking houses who I understand have also evinced interest,8217;8217; Damodaran explained.

He also indicated that the country8217;s leading stock exchanges, the NSE and the BSE have plans to take over regional stock exchanges.

Another major issue, according to Damodaran, is the conflict of interest that emerges when a profit-seeking entity has to perform regulatory functions. 8216;8216;Commercial functioning shouldn8217;t impact regulatory functioning of the exchange. Even Australia and the New York Stock Exchange have not been able to address this conflict entirely. They say they have Chinese walls, but the only effective Chinese wall in the world is the Great Wall of China,8217;8217; he said.

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Damodaran8217;s comments come a few months after the Delhi Stock Exchange8217;s attempts to rope in strategic investors to run the exchange were put on hold, after Sebi intervened. Sebi has been mooting the demutualisation of stock exchanges, so that at least 51 per cent of an exchange8217;s shares are owned by public other than the trading members of the exchange.

However, with most regional stock exchanges having little trading or revenues beyond the annual listing fees from companies, it is unlikely they will be able to attract investors through an IPO. The Anantharaman Committee should submit its report on how to take the process forward in six weeks time, Damodaran said.

8216;FIs should vote with their feet8217;

SEBI Chairman M. Damodaran today said that institutional investors who hold considerable stake in listed companies should ensure that the company is run efficiently or exit from the company.

Addressing a policy discussion on corporate governance, Damodaran said that FIs should 8216;8216;vote with their hands or their feet8221; to ensure that companies adhere to all the norms of trading.