Regulatory ambiguity on NSE foreign listing plan

National Stock Exchange’s (NSE’s) plan to list abroad faces regulatory ambiguity, say legal experts.

According to them, the current provisions don’t allow an exchange to do this and the Securities and Exchange Board of India (Sebi) might have to provide a special exemption to enable it.

Last month, the exchange said it was keen to list abroad, after doing so domestically. Although the rules permit a domestically listed company to do so abroad, no clear provision allows a ‘recognised stock exchange’ to do the same, believe legal eagles.

The Securities Contracts Regulation Act (SCRA) and Stock Exchanges and Clearing Corporations (SECC) Regulations, which govern bourses, aren’t clear on foreign listing, they say.

“The SCRA and SECC envisage listing only on a recognised stock exchange. Overseas listing of a recognised exchange has not been contemplated. Overseas listing will require amendments to the regulations. The decision of the board of NSE at its meeting held on June 23 is merely enabling in nature and overseas listing (as and when permitted) will require approval of Sebi as contemplated under the said regulations,” says Yogesh Chande, partner, Shardul Amarchand Mangaldas & Co.

Sandeep Parekh, founder of Finsec Law Firm, adds: “No Indian exchange can list abroad or self-list. These are clear from Regulation 45 (of SECC) and if ever this is to change, the Sebi board must amend the regulations and table these in Parliament.” The regulation sets the terms for listing of exchanges.

An NSE spokesperson said the exchange recently issued a statement on its listing plan and had no further comment.

“For domestic listing, the board of directors — subject to shareholders' approval —has expressed a desire to file the DRHP (draft red herring prospectus) latest by January 2017, after addressing restructuring needs of the exchange and the regulatory requirements for listing. The board has also advised the management to file for overseas listing by April 2017,” NSE had said.

Investment banking experts say listing abroad would help Indian exchanges in better price discovery. “Several large exchanges are listed in the overseas market. These have generated superior returns. As a result, investors there understand and value the exchange business better. Overseas listing, therefore, is a positive step from the shareholders' perspective,” said a banker, asking not to be named.

Some say it remains to be seen if Sebi would be forthcoming on the proposal.

"Sebi is likely to be circumspect in awarding such an approval, in view of the sensitivity surrounding a market infrastructure institution," says Tejas Chitlang, partner at IC Legal.