Jalan: Door not closed on listing of bourses

Bimal Jalan, former governor of the Reserve Bank of India, on Tuesday clarified that his committee’s report did not shut the door on listing of stock exchanges, though this was hardly the right time for it.

“We have a completely open mind on listing. There is no fundamental assumption that (stock exchanges) should not be listed. There is a good case for listing,” Jalan said at a discussion organised in New Delhi by Confederation of Indian Industry with national and regional stock exchanges, market intermediaries, depositories, private equity funds and journalists.

“But there is this issue. Until we stabilise the markets, we have taken a view on listing, saying ‘on balance’. Since the balance is not clear on Tuesday, list it after five years if you want, or list it after two years, or list it even tomorrow if you want,” Jalan added.

He said stock market regulator Securities & Exchange Board of India, which had appointed the committee to review the ownership and governance of market infrastructure institutions, had to take a final view on listing. The report of the committee could be taken up at the next meeting of Sebi’s board.

The seven-member committee has opposed listing on the ground that a downward movement of share prices could erode the credibility of market infrastructure institutions. Both the premier stock exchanges in the country – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) – have drawn up plans to go public and brought in investors who would be denied an easy exit if the bourses did not list.

The report has also ruffled feathers with recommendations on capping profits, restricting the role of anchor investors to only domestic banks, insurance companies and other public financial institutions having a net worth of at least Rs 1,000 crore, and allowing only fixed pay, without variables linked to commercial performance.

Some market players have said that the report, if implemented, would benefit NSE. Rivals BSE and MCX-SX have said it would promote anti-competitive business practices.

Taking the criticism head on, Jalan and K P Krishnan, secretary to the Prime Minister’s Economic Advisory Council and a member of the Jalan Committee, launched a spirited defence of the report. At one point, Jalan waved a copy of a financial newspaper (not Business Standard), which had a column by one of the participants in Tuesday’s discussion, and asked him to admit that he was wrong in writing that the committee did not hold widespread consultations.

Dispelling the impression that the committee thought of stock exchanges as public utilities, Jalan emphasised that they were a business. “Stock exchanges are in the service business. They have to safeguard the interest of the public and other stakeholders,” he said. The committee’s intent was to ensure this happened.

The report has said that as long as commercial and regulatory responsibilities of an exchange were intertwined, there would be conflict of interest. On this point, the schism between NSE and BSE became apparent. BSE Chief Executive Officer Madhu Kannan said the regulatory and commercial sides were adequately separated. His counterpart at NSE, Ravi Narain, pointed out that every developed market had taken the regulatory role out of exchanges.