Former RBI governor Bimal Jalan, who headed a panel on stock market ownership and governance, appears to have softened his stance on whether stock exchanges should be allowed to list. Asked why he opposed listings, and after it was pointed out that listings were critical if exchanges had to raise funds, Jalan said the group had not taken any fixed view on this and market regulator Sebi would be free to decide on the timing and mode of listings.
?We have a completely open mind on listings. We have not taken a categorical view that listings should not be allowed at all. Our view is that the market is heavily skewed at present and any decision by Sebi on the issue should take this into account,? Jalan said at a seminar organised by the CII on the committee?s recommendations.
Jalan was equally ambiguous when it came to the other recommendation ? restricting equity limits to 5% for most investors ? that drew a lot of flak from most market participants at the seminar, with the exception of the National Stock Exchange. The 5% cap, Jalan clarified, had not been put in place by his committee, but was, in fact, part of the prevailing legal system in place, and the committee just went by the current law. The committee, he said, had not suggested any restriction on the number of stock exchanges in the country nor had it any fixed view on restricting ownership of entities in exchanges to a maximum of 5%. ?Sebi can take a decision on these matters following some of its existing procedures,? he said.
It is not clear if Jalan changed his mind following the sharp attack the committee had had to face or whether he was taking the easy way out by simply ducking questions by being diplomatic. ?I am not here to defend the report,? was a stock phrase used, ?I am here to explain it?. In response to several queries as to why the committee had restricted the concept of anchor investors (they can invest up to 24% in an exchange as opposed to 5% for other investors) to only banks and financial institutions, Jalan did not defend the recommendation but said it was up to Sebi to take a view on whether other investors could be included in the list or whether the net worth criterion for such investors could be lowered.
In response to the view expressed by some, such as MD and CEO of BSE Madhu Kanan, that the panel was going back on the implicit promise made by the Kania Committee that listing would be allowed, KP Krishnan (a Jalan panel member) said this was untrue since he was handling the matter at that time. While Kanan backed down, former executive director of Sebi Sandeep Parekh took on Krishnan and said Kania left the option open.
Parekh said the matter would go to a court eventually and session chief Subodh Bhargava asked panelists not to discuss issues that would eventually be settled by the courts. Addressing the opposition to his recommendations, Jalan said, ?The problem is that globally, there are no standard rules in which the market functions. Markets are volatile and self feeding but one has to take anticipatory action to prepare if things go wrong,? he said.
Headed by former Reserve Bank governor Bimal Jalan, the committee was set to examine ownership, control, governance norms and listing of market infrastructure institutions, including stock exchanges, depositories and clearing corporations. The report was released on Nov 24 and received strong criticism from industry players. Advising stringent ownership norms for stock exchanges, the committee has suggested keeping profits made by stock exchanges under strict oversight and barring exchanging to list themselves. While the report does not recommend capping profitability, it raises alarm over these earning super-normal profits.
The committee report had also raised doubts over the Bombay Stock Exchange?s plan to launch an initial public offering by March 2011. Many foreign investors bought stakes in the BSE hoping to cash on during its listing. Sections in the market have argued that the Jalan committee report will protect the monopoly of the National Stock Exchange and make entry of MCX-SX in the equities space next to impossible.