Demutualised doubts

Updated: Nov 18 2005, 05:30am hrs
Logically, the rules governing the post-corporatisation structure of stock exchanges and the possibility of their going public should have been discussed and formalised alongside the demutualisation rules. Instead, the finance ministry and the Securities and Exchange Board of India (Sebi) seem to have woken up to the implications of not having a policy in place only when a few stockbrokers and industrialists (some with fairly dubious antecedents) rushed to grab control of the newly demutualised bourses. One must, however, admit it was difficult to anticipate investment interest in any but the two national bourses. All regional exchanges, including Delhi, are nearly defunct and only survive through the operations of subsidiary entities operating as sub-brokers on the two national bourses. Since the 10 year-old National Stock Exchange had not bothered to seek public listing despite its market leadership, the Bombay and Delhi SEs impatience to go public or bring in strategic investors is a surprise.

As things stand, Sebi has compelled the Delhi SE to back down from a potentially defiant action. It has also correctly put on hold all plans to transfer control to strategic partners or seek public listing until a clear policy is formulated. After all, SEs are distinct from other listed companies; they are self-regulatory organisations (SROs) entrusted to protect investors and their corporatisation and listing raises several regulatory concerns. For instance, if Sebi decides to allow self-listing, should stock exchanges be responsible for their own regulation If one stock exchange lists on another, can the regulator ensure that it is guaranteed fair treatment Since fines and listing fees are the main income of a bourse, can bourses be trusted not to misuse their regulatory powers and increase fines and fees under pressure to show higher profits every quarter

Most important, market regulators the world-over have used the Listing Agreement as a tool to enforce good governance norms. How will the regulator ensure that business pressures dont persuade bourses to turn a blind eye to lapses of compliance and disclosure by listed firms One solution could be to separate the regulatory functions of bourses from their task of providing an efficient trading and clearing platform (if the regulator permits self-listing). Here too, Sebi will have to create a structure that is accountable, independent and adequately empowered. Whatever model is eventually accepted and adopted may require structural and legislative changes before Indian bourses can be publicly listed.