The investors in the Indian equity markets will now embrace themselves for something special. They will now have a chance to own shares of Stocks Exchanges (place where stocks of different companies are traded). It will be a first of its kind in the Indian equity markets that the Stock Exchanges themselves will have their shares open for subscription by general public.

Let us go through some of the important points which the Securities and Exchange Board of India (SEBI) has laid down for the Stock Exchanges to get themselves listed.

The capital market regulator SEBI has allowed listing of local stock exchanges, subject to a few conditions. Stock exchanges will now be allowed to list after their regulatory and business functions are separated to prevent a potential conflict of interest. However, self-listing of shares by Exchanges has been barred.

The SEBI board has broadly accepted the recommendations of the Bimal Jalan committee, which was not in favour of listing stock exchanges and had made out a case for capping of profits made by exchanges saying that they were like ‘public utilities’. However, there was strong resistance to the committee's suggestions, stoking a controversy and forcing a wider public debate on the issue which culminated in SEBI’s decision to allow the Stock Exchanges to list but with some conditions:
 

• Bourses must separate regulatory & business roles before listing
   
• Listing will take place three years after securing SEBI's nod
   
• Bourses will have to set up independent clearing corps and transfer 25% of profits to Settlement Guarantee Fund (SGF)
   
• Remuneration to key stock exchange personnel will need SEBI’s approval
   
• No single investor should hold more than 5% in the Stock Exchange
   
• Exchanges, depositories, insurance companies, banks & public financial institutions allowed holding up to 15%
   

Impact on the investors...

 

Investors will now have some more flavour in their equity basket as the listing of stock exchanges is something new. The condition that no single investor (apart from Exchanges, depositories, insurance companies, banks & public financial institutions) should hold more than 5% in the Stock Exchange will make sure that small investors are benefited. Likewise, the decision would also excite investors such as Temasek and Deutsche Borse which have holdings in the BSE and NSE. But interestingly, brokers are upset by the rule which precludes them from being on the board of an exchange.

 

Our view:

Primarily, we think that separation of exchange’s regulatory and business development role is an extremely prudent condition levied by the capital market regulator. Likewise, condition for barring self-listing too is in investors’ interest. Also by capping individual holding at 5%, makes sure that small investors are benefited. Thus, overall we believe that the SEBI’s approval for listing of Stock Exchanges will help in further development of the equity markets. Moreover, the conditions laid down by the SEBI to keep a check on any malpractices will further boost investor confidence in the markets.

 

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