Govt mulls new stock exchange norms

The report recommended capping the stock exchanges’ profitability and barring them from getting listed to safeguard their role as a front-line regulatory body.

The proposals have been pending for about a year now and were deliberated here in a discussion amongst the senior Finance Ministry officials and the top executives of various stock exchanges,including NSE,BSE and MCX-SX.

Among others,Economic Affairs Secretary R Gopalan,Joint Secretary (Capital Markets) Thomas Mathew and Jalan expressed their views on the matter.

Sources said there was a general consensus about allowing the stock exchanges to get listed,improving the efficiency and transparency in their business and allowing greater competition in the business.

It was felt that listing of the exchanges could lead to better corporate governance practises at the bourses.

The government officials are believed to have said the issue needs to be tackled carefully and a calibrated approach was required before allowing the listing.

Sources said many of the participants,including government officials and industry executives,suggested segregating the regulatory and business roles of the bourses before their listing.

It was discussed that either the regulatory role could be entirely vested with the market regulator Sebi,or the exchanges’ regulatory powers could be partly divided between Sebi and a new Self-Regulatory Organisation (SRO) formed with representation from various industry players.

However,there was no unanimity on the Jalan panel’s proposal for capping the profitability and for the shareholding pattern of the exchanges.

One of the options,proposed by an exchange,included allowing the exchanges to have an anchor investor with up to 26 per cent stake,while the other options were for having a more diversified shareholding and following the global models.

The senior government officials are believed to have opined that the issue of conflict of interest required to be tackled and one of the options could be hiving off the regulatory and surveillance functions of the exchanges to the outside agencies or SROs.

Even Jalan is said to be of the opinion that the listing of stock exchanges was a completely open question,but any changes in existing regulators required to be tackled carefully as the markets were going through uncertain times.

The Jalan committee,set up in January 2010,for review of ownership and governance norms for market infrastructure institutions,submitted its report to Sebi in November last year. Sebi then invited comments on it till December 31.

The proposals generated intense debate and proposals like non-listing of bourses and cap on profitability were opposed and termed as anti-investor measures.

In the wake of stiff opposition to the proposals,Sebi later put the ball in the government’s court.

Thereafter,a committee was set up by the Ministry of Corporate Affairs (MCA) to discuss the proposed rules,which held its consultations in May.

In its meeting with the representatives from the bourses,industry bodies,accounting bodies and other market entities,the MCA sought suggestions on a roadmap for segregation of regulatory and commercial roles of the exchanges.

It was proposed that steps need to be taken to keep the front-line regulatory role of the bourses unaffected by their profit-making and other business interests after they become publicly held companies following their listing.

On its part,the Sebi board has not even discussed the matter in its last few board meetings as it was waiting for suggestions from the government on the contentious issues emanating from the Jalan committee proposals.

It is expected that the matter could come up for the Sebi board’s consideration in its next meeting,once the government takes a final view after consultations with various parties.