Sebi panel submits report on bourse ownership, profits

Capital market regulator Sebi may propose sweeping changes in the way stock exchanges are owned and earn money, as an expert committee set up by it today suggested strict monitoring of profits and a diversified shareholding for the bourses.

The committee, headed by former RBI Governor Bimal Jalan, submitted its proposals to the regulator after months of deliberations among members and analysing outside opinion.

Sebi today posted on its website the report by the committee, which has also sought further public comments on the recommendations made by it.

The report from the committee, whose members included prominent banker Uday Kotak and industrial conglomerate Tata group's senior executive Kishore Chauker, could be taken up for consideration in the next meeting of the Sebi board.

Among other recommendations, the committee has suggested Sebi keeping the profits made by the stock exchanges under its strict oversight and has voiced its concern over super-normal profits, although it has stopped short of capping the profitability.

Besides, the committee has suggested a diversified shareholding structure for the bourses, although it favours anchor investors to be given up to a total of 49 per cent stake with one investor owning a maximum of 24 per cent. However, every anchor investor would need to bring down its stake to 15 per cent in ten years from the time of becoming an anchor.

Investors like banks, stock exchanges, insurance companies and public financial institutions can hold up to 15 per cent, while all others can have a maximum 5 per cent, the committee said.

It wants banks and public financial institutions with a net worth of minimum Rs 1,000 crore to be allowed as anchor investors, with the committee suggesting a shareholding larger than 5 per cent for shareholders only after a detailed due diligence and adherence to rules to be prescribed by Sebi.

Currently, the two leading bourses BSE and NSE have a diversified shareholding, with banks, financial institutions and foreign bourses as their major shareholders, but there are no anchor investors as such. Besides, the monopoly and high profits of larger bourse NSE has been a subject matter of sharp criticism by the newer entrant MCX-SX, which is currently allowed to trade only in currency futures.

ebi rejected MCX-SX's plea to trade in equity and other segments on grounds including the bourse' shareholding structure not being in line with the current regulations. Sebi had said that MCX-SX did not meet the rule of a single shareholder holding a maximum 5 per cent, as it considered MCX and FTIL, the two erstwhile promoters, as Persons Acting in Concert (PAC) entities.

The Sebi Board, in its meeting held on December 22, 2009, had decided to set up the committee to look into issues related to ownership and governance of market infrastructure institutions (stock exchanges, clearing corporates and depositories) and give suitable recommendations.

Later in April 2010, Sebi announced the constitution of committee, which decided to adopt a consultative process and sought comments from market players and public on a questionnaire related to Ownership and Governance of Market Infrastructure Institutions by May 10, 2010.

Among other issues, the committee deliberated on self listing of the bourses, their regulatory role, foreign shareholding as also appointment and remuneration for the top management personnel.

The committee has favoured bourses having a regulatory role. For new exchanges, it said that the applicant would have to name the anchor investors in the application itself from among the shareholders having 15-24 per cent.