Our Bureau

The SEBI Chairman, Mr M. Damodaran, with the Assocham President, Mr Anil K. Agarwal, at the release of the Assocham report on `Valuation and ownership of stock exchanges' in the Capital on Friday. - Kamal Narang

New Delhi , Feb. 17

ASSERTING that entities with "deep pockets" cannot be allowed to buy into stock exchanges in view of the latter's importance in the capital market, the SEBI Chairman, Mr M. Damodaran, on Friday said the Government would have to take a call on who needs to be allowed to play a part in the ownership of the exchanges.

Releasing an Assocham study on `Valuation and ownership of stock exchanges', Mr Damodaran touched on a host of issues relating to ownership of stock exchanges that needed to be sorted out by the Government.

"You need to be clear about who can be permitted to acquire ownership functions. This is an area of policy. Should foreigners come? Should it be foreign entities with track record in this business? Should it be people generally in the area of finance? Should it be other exchanges that can establish bonafides? Should it be Indian broking houses, which have expressed interest having been done out of ownership due to demutualisation?" Mr Damodaran said.

Mr Damodaran expressed disappointment that there was not enough understanding even among those who need to understand the importance of stock exchanges. He said many people still believe a stock exchange to be just another organisation that is involved in facilitating transactions.

"Stock exchanges are the first level of regulators in a capital market. They are the ones who ensure an orderly conduct of market. SEBI as a capital market regulator is one removed from the action is a fact of life that is not appreciated at all. That is a critical issue when one looks into issues of ownership, business plans and conflicts of interest in stock exchanges," he said.

The SEBI chief also highlighted the major issue that has been thrown up by demutualisation, that of a for-profit entity seeking to play a part in regulation and also seeking to ensure compliance by itself and those entities that have themselves listed on the exchange.

"This only gets a little more complicated when the exchange as an entity that has become a for-profit entity has decided to get itself listed. Then this raises the question of are you a judge in your own cause and what systems have you put in place within the organisation to ensure that your commercial functioning does not impact your regulatory functioning within the organisation," he said.

As for the Anantharaman committee on `future of regional stock exchanges post-demutualisation,' Mr Damodaran said the report was expected in the next 6-8 weeks.

The Assocham study has suggested that it may be desirable to allow foreign direct investment (FDI) up to 49 per cent in stock exchanges. Stating that the majority holding of 51 per cent would always remain with domestic entities, the study has, however, recommended that up to 49 per cent, within this 51 per cent, should be held by trading members.

New regulations on floating stock soon: Later speaking at a seminar organised by the Confederation of Indian Industry (CII) on corporate governance, the SEBI Chairman said that the minimum amount of floating stock for listed companies that should be with the public has already been fixed at 25 per cent and necessary regulations would be out shortly.

"The regulations will be out before the Budget. But since listing is now permitted with 10 per cent public holding, companies would be allowed time to comply with regulations," Mr Damodaran said.

When asked specifically how much time these companies would be given to comply with the new regulations, he said that "it will not happen in one or two years."

© Copyright 2000 - 2009 The Hindu Business Line