Sebi's weak exchange PDF Print E-mail
Tuesday, 03 April 2012 00:18
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5% cap on ownership a bad idea, allowing listing good
Given that Sebi’s board could have accepted all the recommendations of the Bimal Jalan committee on stock exchanges, Monday’s decision to reject some of them is a good one. So, Sebi has rejected the cap on profits of stock exchanges recommended by the Jalan committee as well as the one that didn’t allow stock exchanges to list—with Sebi plumping for allowing an exchange to list, though not on itself, this gives a vital exit route to investors, albeit after three years.
The problem, however, is that there is no coherence to what has been accepted. And, more important, we are once again left with a situation where, instead of moving towards uniform regulation in the financial sector, there are one set of rules for commodity markets, another for banks, yet another for insurance firms and a still different one for equity markets—if only the High Level Coordination Committee on Financial and Capital Markets (HLCC), which is the coordinating body for the financial sector, had been consulted on the matter before Sebi decided on it. So, while RBI wants promoter equity in banks to be a minimum of 40%, Sebi wants it to be a maximum of 5%—how a minimum of 20 persons are to get together to start a business, including a paan shop, remains a mystery. Indeed, while RBI allows banks to begin with 100% ownership, subject to this being diluted later, it is quite flexible about the time period. What’s interesting is that when Sebi realised, in 2008, that stock exchanges needed to be well-capitalised and that the 5% rule was stopping this, it made an exception and allowed banks, stock exchanges, insurance firms and a few others to hold up to 15%. While Jalan’s committee wanted to raise this to 24%, Sebi has rejected this, but the relaxation is allowed only for ‘stock exchanges’ and not any exchange which will include commodity exchanges like MCX-SX’s promoter MCX! So that’s an obvious bias that remains.
What makes Sebi’s board’s decision on the 5% cap all the more curious is that it has made several other recommendations that ensure stock exchanges are run even more professionally and independently of the owners. So, the Member Regulation is to report to an independent board committee as well, ditto for the head of listing and for the head of surveillance; stock exchange boards will not have any trading members and the appointments of all directors and top officials will be subject to Sebi’s approval. Given all this, Monday’s board decision was a wasted opportunity.

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