Sebi may tighten public shareholding norms for bourses

Decision likely at March 20 board meeting; fee hike also in the offing

The Securities and Exchange Board of India (Sebi) will soon decide whether public financial institutions such as banks and insurance companies which are also trading members on stock exchanges can continue to be classified as ‘public’ shareholders in bourses.

According to the Stock Exchanges and Clearing Corporations (SECC) Regulations, at least 51 per cent of the shareholding in a stock exchange should be held by ‘public’ other than those with trading rights. If trading members aren’t considered part of public shareholding, three of the four major stock exchanges in the country will have to increase public shareholding.

Sources said it was likely the matter would be discussed at a Sebi board meeting scheduled for March 20.

PUBLIC AFFAIRS

• Trading members such as banks to be classified as 'non-public' shareholders
• Stock exchanges should have at least 51 per cent public shareholding
• MCX-SX, USE and BSE may have to increase public holding
• Sebi also likely to revise fee structure for intermediaries
• Decisions likely at board meeting on Thursday

In 2012, when Sebi had notified the SECC regulations, it had allowed financial institutions with trading rights to continue as public shareholders for three years. Meanwhile, it had started consultations with the government on whether there could be relaxations.

The market regulator has been in the favour of treating trading members such as banks as public shareholders, while the finance ministry is said to be against the proposal. For such investors, differential treatment would encourage greater participation in stock exchanges, which would develop the capital market in the long term, Sebi is said have told the finance ministry.

The ministry, however, is said to be of the view that allowing any category of shareholders with trading interest will dilute the principle of demutualisation (separating ownership and management in a stock exchange), aimed at avoiding conflict of interest and bringing about more transparency in the functioning of stock exchanges.

Barring the National Stock Exchange, all three major exchanges— BSE, MCX-SX and United Stock Exchange — will have to increase public shareholding by April 2015, unless the Sebi board provides any further relaxation.

At the March 20 meeting, Sebi is likely to consider a sharp rise in the fee it levies on market intermediaries or entities accessing the capital market for fund-raising, for 2014-15. The move is aimed at carrying out critical functions such as surveillance, enforcement and investor education in a more effective manner. For entities such as brokers and mutual funds, the fee revision could be across-the-board. The charge levied on companies when offer documents are filed could also be increased.

In 2012-13, Sebi’s expenditure had exceeded its income. The regulator had set up an internal panel to suggest ways to rationalise financial resources.