Stock exchanges' view sought on market access to insurance, pension funds

To deepen the equity markets, the finance ministry has asked stock exchanges for suggestions on allowing insurance and pension funds greater access to the stock market. The Financial Stability and Development Council (FSDC) is expected to take up the issue in its next meeting.

In a meeting with the finance ministry yesterday, the bourses had suggested that insurance funds and pension funds be allowed to invest in the stock market in a bigger way. All four exchanges — Bombay Stock Exchange, National Stock Exchange, United Stock Exchange and MCX-SX— will now send their suggestions to the finance ministry. These will be discussed with the ministry in a meeting likely next month.

Once the suggestions are formalised, the issue will be referred to FSDC, which is likely to meet in December. The body, headed by finance minister Pranab Mukherjee, is mandated to sort out inter-regulatory issues and strengthen and institutionalise the mechanism for maintaining financial stability.

The issue of pension and insurance funds concerns three regulators —Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irda) and Pension Fund Regulatory and Development Authority (PFRDA). Besides, the biggest chunk of retirement funds comes under the Employees Provident Fund Organisation (EPFO), whose central board of trustees has, so far, not accepted the finance ministry’s proposal to invest a portion of funds in stock markets.

Even as Sebi and Irda allow mutual funds and insurance companies to invest most funds in equity, PFRDA allows only non-government schemes to invest up to 50 per cent in equities, that too, in Nifty-50 and BSE-30 companies. The labour ministry is against investing retirement funds into equity in the absence of a minimum guarantee benefit.

While the stock exchanges feel an increase in equity investment by retirement funds will provide some stability to the market in times of volatile investments by foreign institutional investors, a section of people is against increasing the limits. Though many countries allow equity participation by these funds, some in India are opposed, as it might put investments of millions at risk.

The finance ministry has also asked stock exchanges to prepare a background note on key areas such as levying Securities Transactions Tax and compliance procedure and costs on brokers, and discuss these in the next meeting.

Last month, the ministry had formed a sub-committee, which would meet regularly to resolve issues pertaining to the exchanges through a consensus. In its second meeting yesterday, the ministry had sought inputs from stock exchanges to expedite setting up of an SME platform to help small and medium enterprises raise funds from the public.