Industry wants holding cap in exchanges raised

Domestic institutions can hold up to 15% stake.

Market participants want the regulator to increase the maximum permissible holding for domestic institutions in stock exchanges from the current 15 per cent to 25 per cent.

At present, investors who can buy up to 15 per cent in a stock exchange include domestic banks and financial institutions, clearing corporations, depositories and stock exchanges.

This is one of the important proposals put forward by a section of the industry before the Bimal Jalan committee, set up to review the ownership and governance of market infrastructure institutions. The committee’s report is expected next month.

Industry players feel the current cap of 15 per cent for financial institutions acts as a road block in attracting genuine investors. Incidentally, when the norms were first promulgated, the cap was five per cent. Only later were certain categories of investors, including stock exchanges, allowed to increase their share to 15 per cent.

According to people familiar with the development, the industry suggestion also stems from the fact that the proposed takeover norms stipulate increasing the open offer threshold to 25 per cent from the current 15 per cent.

“Institutions want the committee to align the structure with the proposed takeover norms and also with the Companies Act,” said a person familiar with the development. “A stake of 25 per cent gives the holder immense power under the Companies Act. Domestic institutions will be more comfortable acquiring a stake in exchanges if there is a possibility of taking it up to 25 per cent,” he explains.

Last year in August, the Bombay Stock Exchange (BSE) acquired 15 per cent in the United Stock Exchange. BSE also holds a five per cent stake in the Calcutta Stock Exchange. Similarly, the Financial Technologies Group owns five per cent in the Delhi Stock Exchange.

Other issues
The Jalan committee, formed in February, has sought views from market participants on a host of issues, including the model of ownership for stock exchanges and depositories. “The consultation process of market players and financial market intermediaries will be vital. It has been done on wide-ranging issues, as there is no specific or unique model or one view that we have followed. All views have been taken into account so that the outcome is constructive,” said a key committee member.

It asked participants whether diversified ownership (as in the case of stock exchanges) or an anchor/strategic investor approach (as in the case of depositories) is a better model. The committee has also sought views on classes of entities that can be permitted to be anchor investors. And, if there should be lock-ins for anchor investors.

The committee is also looking at whether the current limit for foreign institutional investors in stock exchanges needs to be reviewed. Market participants have also been asked to give views on whether foreign stock exchanges can be permitted to hold up to 15 per cent or more equity in Indian stock exchanges. The committee will also specify shareholding norms in depositories. Recently, BSE raised stake in Central Depository Services Ltd to 51 per cent, while NSE holds a little over 25 percent in National Depository Services Ltd. The exchanges are in a race to provide end-to-end solutions to clients.