It?s unlikely that a key recommendation of the Bimal Jalan committee report, that profits of stock exchanges be capped, will be accepted by the Securities and Exchange Board of India (Sebi). Consensus, sources say, is that exchanges be allowed to profit without a ceiling. The issue of whether individuals should own more than a 5% stake in a stock exchange, a view not endorsed by the Jalan committee, remains a matter of contention and no consensus appears to have emerged more than a year after the report was submitted. That is one reason why the status quo continues.
Also, there have been extensive deliberations of anchor investors being allowed up to a 26% stake but whether these investors will be only banks and public financial institutions, as the committee suggested, is not clear. Again, while the capital market regulator and the government appear to be of the same view on allowing exchanges to list, it?s not clear how the regulation piece will be segregated from the operations.
The Bimal Jalan Committee was formed in February 2010 to review the ownership and governance of market infrastructure institutions (MIIs), including stock exchanges, depositories and clearing corporations. The committee submitted its report to Sebi in November 2010. Sources say there are clarity on most issues. ?Importantly, there will be no cap on profits because everyone is of the view that exchanges are just like any other business,? they say. Again, people in government are convinced that stock exchanges should be listed so as to facilitate exits for investors, especially strategic and financial investors who may be holding relatively large stakes. While shares of both the National Stock Exchange and the Bombay Stock Exchange do change hands, a listing would result in more efficient price discovery. However, no one is quite sure as to how exchanges will deal with what is a clear conflict of interests if they are both regulators and business people. ?One section of market players want the segregation of responsibilities to be done ahead of the listing while some feel that the issue can be looked into even after allowing listing,? people close to the discussions point out.
Incidentally, there are two distinct models globally to address this concern and either of the two could be adopted by the Indian policy makers.
In some countries, regulatory responsibilities vest with the state regulator, which in the Indian situation would be Sebi, while in others an industry SRO ? self regulatory organisation ? is created to handle such roles. This has to be done prior to the listing. The Jalan committee, in its report, mentioned that any exchange ?should not become a vehicle for attracting speculative investments.? Further, ?any downward movement in its share prices may lead to a loss of credibility and this may be detrimental to the market as a whole,? it observed.