Address exchanges' dual role, says NSE Chairman Kelkar

National Stock Exchange (NSE) chairman Vijay Kelkar has said the question of conflict of interest arising from the exchanges' dual role as a commercial entity and a self-regulatory body needs to be addressed on priority.

Kelkar, who was here recently to deliver the R Venkatraman Endowment Lecture 2011, said Indian exchanges were demutualised and corporatised and played dual roles. “The question of the conflict of interest arising from the exchanges' dual role is most critical. This needs to be addressed on priority and a road map needs to be drawn, even if policy makers decide against the listing of exchanges,” he said.

"If the decision is in favour of listing, the resolution of the conflict becomes even more critical," he said. “The autonomy of the regulatory departments of exchanges by the creation of a Chinese Wall as suggested by the Jalan Committee is only one of the available options,” said Kelkar. "There are other ways to insulate the regulatory functions from commercial pressures. For example, all exchanges could be divested of their regulatory roles and these roles could be entrusted to a newly created industry-wide SRO. Yet another alternative is that the government regulator, Sebi, assumes all the regulatory functions and there would be no front-line regulator. None of these three options is free of serious problems,” said Kelkar.

He added that the effectiveness of 'Chinese Walls' to preserve autonomy under pressures to raise returns was yet to be proven in the Indian context. On the issue of listing, he noted that the committee was of the view that shareholders of exchanges needed to be long-term investors and that exchanges should not be vehicles for attracting speculative investment. “While several exchanges around the world have already listed, most of them are in mature markets where the regulatory roles of exchanges have been hived off. In my view, it is possible for exchanges to realise the most significant benefit of listing, that is improved governance standards, without listing,” he said.