Finance ministry sources told FE that critical decisions for facilitating the whole process, aimed at restoring investors confidence in the stock market, are likely to be taken at the Sebi Board meeting in Mumbai on Friday.
Finance minister Jaswant Singh said on Wednesday the government was actively pursuing corporatisation and demutualisation of the bourses. Replying to the debate on the Sebi Amendment Bill, 2002, in the Lok Sabha, Mr Singh said the government was committed to implementing the recommendations of the justice Kania committee on demutualisation, and would report compliance shortly.
According to sources, the Kania recommendations are likely to be approved by the Sebi board at the meeting.
The recommendations of the panel include: stock exchanges which are set up as association of persons and those which are set up as companies limited by guarantee be converted into companies limited by shares; a common model for corporatisation and demutualisation be adopted for all stock exchanges; and clause (j) of section 2 of the Securities Contracts Regulations Act of 1956 will have to be amended to provide that the bourses are mandatorily incorporated as companies under the Companies Act.
It had also suggested that the three stakeholders - shareholders, brokers and investing public through the regulatory body - be equally represented on the governing board of the demutualised exchanges. The panel had stressed that there should be specific vacancies on the board for each group of stakeholders, shareholders representatives should not be functioning brokers, and representatives of the brokers should be elected by shareholders from among the brokers of the exchange.
The representatives of the investing public would be nominated by Sebi from among a panel comprising academics, professionals, industry representatives, public figures and investor associations, none of who should have any interest in any broking firm.
Further, the committee had also suggested that adequate disclosures about the background of the directors of the board be provided to the shareholders at the annual general meetings and the annual reports, and the roles and the posts of chairman and chief executive be segregated. The chairman would be a person who has considerable knowledge and experience of the functioning of the exchanges and the capital market.
Stressing that the chairman of the board should not be a practicing broker, the panel said the demutualised stock exchanges should follow the relevant norms of corporate governance applicable to listed companies in particular, constitution of the audit committee, standards of financial disclosure and accounting standards, disclosures in the annual reports, and disclosures to shareholders and management systems and procedures.
The panel had noted that the concept of regional stock exchanges, which was introduced in the days of manual trading and open outcry system to encourage mobilisation of resources and development of the equity cult across the country, lost its relevance in the days of automated trading. Hence it had called for doing away with the concept of regional stock exchange.