SEBI allows listing of stock exchanges

The Securities and Exchange Board of India (SEBI), on Monday, decided to allow stock exchanges to list. However, they can't list on themselves. “No stock exchange shall be permitted to list within three years from the date of approval by SEBI. Depository may also be allowed to list but not the clearing corporation considering its risk bearing role,” the regulator said after a board meeting here. SEBI said it might permit stock exchanges to list “when they put in place the appropriate mechanism for tackling conflicts of interest. However, stock exchanges will not be allowed to list on themselves.'' SEBI, however, stipulated that stock exchanges would have a minimum net worth of Rs.100 crore. The existing stock exchanges would be given three years to achieve this net worth of Rs.100 crore, the regulator said. The SEBI board, which met here, formulated a policy for market infrastructure institutions (MIIs), which include stock exchanges, clearing corporations and depositories, based on the report of the Bimal Jalan Committee. The minimum net worth for the clearing corporation (CC) and depository will be Rs.300 crore and Rs.100 crore, respectively. All existing clearing corporations shall be mandated to build up to the prescribed net worth of Rs.300 crore over three years from the date of notification/circular. The stock exchanges would have to have diversified ownership. However, no single investor would be allowed to hold more than five per cent except the stock exchange, depository, insurance company, banking company or public financial institution, which might hold up to 15 per cent. Further, SEBI said 51 per cent of the holding of the stock exchanges would be held by the public. In case of clearing corporations at least 51 per cent holding would be held by stock exchanges. No single stock exchange, however, would hold more than 51 per cent in any CC. A stock exchange holding 51 per cent in a CC cannot hold more than 15 per cent in any other CC. To ensure diversified ownership for shareholders other than stock exchanges, the limit of 5 per cent and 15 per cent shall apply as in the case of stock exchanges. Any stock exchange now holding more than 51 per cent shall be given three years to bring its holding to the prescribed limit. In case of depositories, minimum 51 per cent holding would be held by sponsors and the existing list of sponsors would continue. No other entity would be allowed to hold more than 5 per cent of the equity share capital. A single stock exchange would, however, not hold more than 24 per cent. SEBI said the shareholding limit prescribed for each category of investors shall be inclusive of all exposure (both on and off balance sheet) of a shareholder to the MII that facilitates or permits equity or rights over equity at any future date. “If any shareholder has exposure more than the prescribed limit of shareholding, such exposure shall have to be reduced to the permissible limit within a period which may extend up to three years from the date of getting approval from SEB,” it added.. The voting rights of no shareholder will, however, exceed the prescribed maximum shareholding limit at any point. SEBI said it might permit stock exchanges to list when they put in place the appropriate mechanism for tackling conflicts of interest. However, stock exchanges will not be allowed to list on itself. The central role of the clearing function will be separated into an independent corporation with its own prescribed net worth. To bolster the risk management capacity of CC, the stock exchange will be mandated to transfer 25 per cent of their profits to the Settlement Guarantee Fund of the CCs where their trades are settled. In case of depository 25 per cent of the profits will be transferred to Investor Protection Fund of the depositories. The board of stock exchanges/CC will not have any trading member/clearing member representative. However, an Advisory Committee shall be constituted by the board, comprising trading members/clearing members, to take benefit of experience of such members. All recommendations of the Advisory Committee shall be placed in the ensuing board meeting for consideration and appropriate decision. The Public Interest Directors representation on the board of stock exchange will be 50 per cent and will be two-thirds of the board strength on the board of CC. The rest of the board will constitute of shareholder directors. Keywords: SEBI, Stock Exchanges, IPO, public listing