The one sector still barred from listing abroad

Government had eased FDI norms to allow fund-raising in December

The government opened global funding options for Indian companies when it tweaked its foreign direct investment (FDI) policy last month, allowing listing abroad even without a domestic listing.

However, at least one sector which can’t use the route. Ironically, stock exchanges, the platforms to help companies raise capital, can’t raise any themselves through the foreign listing route.  

Regulation 45 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (SECC Regulations) states a boourse can only list on another  ‘recognised stock exchange.’

FOREIGN EXCHANGEs OFF LIMITS FOR DOMESTIC BOURSES

• Govt eased foreign investment norms in December
• Allowed domestic companies to list abroad without listing in India
• Companies in the stock exchange business (such as NSE, BSE) can't make use of the route
• Definition of 'recognised exchange' restricted to those under Sebi
• Does not envisage possibility of foreign listing
• 'Fit and proper' criteria could also play spoilsport

Sandeep Parekh, founder of Finsec Law Advisors and former executive director of the Securities and Exchange Board of India (Sebi), notes the definition of a recognised stock exchange does not envision a global or foreign player. “The term under the Securities Contracts (Regulation) Act, 1957, means a stock exchange which is for the time being recognised by the central Government (delegated to Sebi) under section 4,” he said.  

This means any foreign exchange, which by definition would not fall under the purview of Sebi, is automatically off-limits for listing. There is also the matter of ‘fit and proper’, by which the regulator defines who can be a shareholder in an exchange.

“Regulation 45 shall be required to be amended to provide for listing of shares of stock exchanges abroad, in addition to amendments relating to the fit and proper criteria for shareholders. Since the Sebi SECC Regulations primarily envisioned listing of exchanges on other Indian stock exchanges, Sebi might want to carry out further changes to accommodate the possibility of listing on exchanges abroad,” he said.

Even if the regulatory hurdles are cleared, an exchange listing abroad will be a difficult proposition to present to potential investors, suggests Avinash Gupta, senior director, financial advisory, Deloitte in India. “It will be difficult to sell. The story you are selling to investors will be one about liquidity and emerging market growth, at odds with an exchange itself going abroad for listing,” he said. “You need a retail following, brokerage coverage and sufficient liquidity for the stock, post-listing. All of these have typically not been easy in a foreign market.”

The BSE and the National Stock Exchange did not respond to an email seeking comment.