Former Reserve Bank of India (RBI) governor Bimal Jalan submitted his report on 'The Review of Ownership and Governance of Market Infrastructure Institutions' to Securities and Exchange Board of India (SEBI) chairman C B Bhave on Monday.
In the backdrop of SEBI's concern over ownership and management of stock exchanges and conflicts of interest among private owners, the committee has come out with recommendations to bring them in line.
Why was the committee formed?
SEBI set up this committee in January 2010 to look into issues related to ownership and governance of market infrastructure institutions (stock exchanges, clearing corporations and depositories).
What is its view on ownership?
The committee feels dispersed ownership is important but institutions fulfilling stringent eligibility criteria maybe permitted to hold a higher percentage of shareholding in stock exchanges. Due to relatively low shareholding limit, the incentive that is available to a single investor may not be sufficient for it to devote the requisite time and energy to further the operational interests of the stock exchange.
It has, therefore, proposed to support the concept of anchor institutional investor (AII), where all AIIs can hold a total of up to 49% of the total equity of the exchange with a cap of 24% for a single AII.
Who can be an AII?
Public financial institutions and banks registered in India that have a net worth of Rs1,000 crore or more may be permitted to be AIIs for stock exchanges for a period of 10 years from the date of recognition as an AII of the exchange.
Who will be on the board of stock exchanges?
The committee feels trading members on board of exchanges are privy to confidential information and, therefore, there is a conflict of interest. It has recommended that no trading or clearing member can be on the board of any stock exchange.
What have been recent issues for which these recommendations may be important?
Recently SEBI rejected MCX-SX's application to trade in equities on grounds of not fulfilling to the required shareholding structure as per regulations. The regulator maintained that MCX-SX failed to meet the maximum shareholding of 5% by a single stakeholder.