Several of these minority shareholders met FE on Friday to voice their concerns. Of NSEs total shareholding of 45 million shares, around 37% is held by individual investors that include private equity funds, including some overseas ones. Based on the last few purchases of NSEs equity, interestingly from public sector financial institutions that hold NSEs equity, the market value of NSE is around Rs 18,000 crore. This means small shareholders could effectively hold around Rs 6,500 crore worth of shares. BSE shareholders, who hold 51% of BSEs value of around Rs 4,000 crore are also planning to finalise their opposition to the recommendations.
The list of investors in NSE includes Goldman Sachs (5% equity), General Atlantic, SAIF Partners, Temasek and Morgan Stanley among others (see table).
According to these shareholders, while they bought NSEs shares in the hope that there would be an exit route once the exchange was listed, the Jalan report effectively shuts off this route. The shares can, it is true, still be sold through private equity sales but the lack of liquidity would lower prices significantly.
The shareholders point out that the Kania committee report, which was accepted by Sebi as well as by Parliament in 2004, had itself spelled out this road map. Kania mandated that 22 not-for-profit exchanges become for-profit ones, and it also recommended that demutualised stock exchanges may list their shares, either on themselves or on other exchanges, though listing was not made mandatory. The committee, which the government regularly quotes in all communication to Parliament, also suggested that 49% foreign investment be allowed.
The Jalan committee is not in favour of listing since it argues that this will make stock market managements focus very closely on stock prices and could lead to a lowering of their regulatory standards. The stock exchange, the Jalan Committee argues, is the first line of regulation for brokers. The committee has also recommended a cap on the profits that can be distributed and has said that emoluments for the top management be restricted to a fixed sum, and should not be linked to performance parameters like stock options this is to prevent the management to have any incentive in driving up the exchanges stock market valuation.
The finance ministry has not taken a view on the Jalan report. If the report is to be accepted, the ministry will also have to take a view on it.
Key recommendations of Bimal Jalan committee on market infrastructure institutions
* Committee not in favour of listing of stock exchanges
* A cap may be fixed on the maximum return that can be earned by market infrastructure institution (MII) on its net worth
* MII should not become vehicle of speculative investments
* Exchanges must have a net worth of Rs 100 crore; Sebi has already set Rs 100-cr networth for new stock exchanges
* The present net worth requirement of Rs 100 crore for depository institutions may be retained
* Minimum net worth for a clearing corporation likely to be fixed at Rs 300 crore
* MIIs working should be reviewed by Sebi after 5 years once the suggestion made the committee is implemented