Sebi approves new listing norms for stock exchanges

Paving the way for the stock exchanges, including BSE and NSE, to get listed, markets regulator Sebi today approved a new set of revised norms for the IPO and listing of the bourses.
The new norms, which have been finalised after taking into account the representations received for listing of stock exchanges, aim to put in place necessary safeguards and procedures with respect to shareholding norms, fit and proper criteria, and other issues of conflict of interest.
The exchanges would need to take steps for maintaining of 51 percentage of shareholding of Public Category and ensuring that holding of trading members, associates or agents does not exceed 49 per cent.

A mechanism would need to be put in place providing for approval of the listed stock exchange as and when holding of trading members/associates/agents reaches 45 per cent, Sebi said after its board meeting here today.
Similar rules would apply for listing of depositories as well.
Leading exchange BSE has been seeking to get listed for a long time, but its plans have been hanging in balance due to lack of regulatory clearances although Sebi had first announced its norms for listing of exchanges over three years ago.

Sebi has been of the view that necessary safeguards need to be first put in place for tackling conflict of interest and other issues.

Welcoming the Sebi move, a BSE spokesperson said, "BSE will try to expedite the listing process based on the regulations. Listing of exchanges are expected to bring additional transparency to the working of the exchanges".
However, he said that the exchange will be able to give its detailed comment only after final regulations are published.
The new norms, approved today, provide that to ensure compliance that every shareholder be 'Fit and Proper', all applicant in the IPO or Offer For Sale will be required to make declaration to this effect at the time of making application.
Sebi will also issue necessary procedures to ensure compliance of the provisions post listing.

The shareholding threshold of 2 per cent, 5 per cent or 15 per cent (for different classes of investors) as the case may be, will be monitored through Depository mechanism.
In order to effectively implement the provisions of listing of its associates on listed stock exchanges, Sebi will also amend the definition of associates.
(Reopens DCM103)
In another proposal, Sebi's board also looked into the recommendations made by an expert committee on Clearing Corporations.
Public comments were earlier sought on the Report of the Committee on Clearing Corporations headed by eminent banker K V Kamath. After looking into the recommendations of the Committee and the public comments received thereon, Sebi's board decided to accept the recommendation relating to viability of introducing a single Clearing Corporation (CC) or inter-operability between different CCs.

The Committee had recommended against the idea of a single CC and felt that the question of inter-operability of CCs can be looked into at a future date.
Sebi's board also accepted the recommendation that stock exchanges need not transfer 25 per cent of their profits to the
core SGF of Clearing Corporation, considering the sufficient availability of SGF (Settlement Guarantee Fund).
On transfer of profits by depositories to their Investor Protection Fund, the Committee had recommended that 5 per cent of profit from depository operations be transferred. This recommendation was also accepted by Sebi's board.
In addition, Sebi's board, while considering the suggestion regarding the nature of eligible investment instruments, approved that apart from government securities and fixed deposits, liquid schemes of debt mutual funds may also be made eligible for investment by recognised CCs and be included in their liquid assets, subject to appropriate investment limits for such investments and other conditions.

The revised norms for listing of exchanges were being keenly awaited and a number of investors in stock exchanges have been selling their stakes through private transactions in the absence of their listing.
Recently, a group of 17 large foreign investors, including Goldman Sachs, Temasek and Morgan Stanley, also approached the government to expedite the process for listing of top stock exchanges BSE and NSE, in which they hold significant stakes.
This group of 17 overseas investors, which also include Deutsche Boerse, Singapore Exchange, Argonaut PE, SAIF Partners, Tiger Global, Acacia Partners and General Atlantic, had said the listing of the bourses will help various public sector entities and others that have invested there.

These investors together hold 31.12 per cent in NSE and 25.30 per cent in BSE.
In a letter addressed to Finance Minister Arun Jaitley, they said each of them has "long-term commitment to India" and steps like listing of exchanges can help in the government's plans to deepen India's financial markets and make India a global financial hub.
Copies of the letter were also sent to the Prime Minister's Office, Sebi and the two exchanges.
In the meantime, an interesting development has taken place following merger of commodities regulator FMC with Sebi, which has led to all commodity exchanges becoming securities exchanges. The largest commodity bourse, MCX, is already listed and the unified norms have made it a listed stock exchange as well theoretically, even as BSE continues to seek listing.

The foreign investors as also some domestic institutions such as SBI have been pressing for listing of the bourses for a long time to get an opportunity to monetise their holdings in part or full, but the exchanges' IPOs continue to get delayed amid lack of regulatory clarity on the matter.
As per existing Sebi norms, exchanges are not allowed to list on their own platforms. Still, there remained some regulatory gaps that are coming in the way of their listings.