In order to encourage more long-term investors, the Securities and Exchange Board of India (SEBI) on Friday proposed hiking individual cap on holdings in a stock exchange to 15 per cent from the existing 5 per cent for certain category of investors.
These investors include stock exchanges, depositories, clearing corporations, banks and insurance companies. However, any other shareholder will continue to hold up to 5 per cent in a stock exchange, a discussion paper prepared by the market regulator said. SEBI has invited comments on the same by September 19.
The proposal came as some investors in the National Stock Exchange (NSE) and Over-the-Counter Exchange of India, who hold more than 5 per cent, been asked to dilute their holding to 5 per cent, according to the present regulations. LIC, IDFC and SHCIL hold more than 5 per cent in the NSE. Recently, SBI’s merchant banking wing SBI Capital Markets reduced its holding in the NSE to 4.3 per cent from 5.6 per cent.
SEBI has received communication from certain quarters that the present limit of 5 per cent is acting as a hindrance in attracting long-term investors to exchanges.
“It is a good consolidation. With the hike in investment cap for individual investors, there would be more money in the exchanges and with higher shares these investors can give better guidance,” SMC Global Vice-President Rajesh Jain said.
The 5 per cent cap on individual entity was imposed after the corporatisation and demutualisation of stock exchanges. Demutualisation refers to segregation of trading and ownership rights by which brokers’ equities were brought down to 49 per cent in Indian stock exchanges. Foreign investment is allowed up to 49 per cent with foreign direct investment capped at 26 per cent and foreign institutional investment limited to 23 per cent.
SEBI’s proposals, if implemented, will also give a breather to certain entities holding more than 5 per cent in commodities exchanges, since they have been following similar regulations applicable to stock exchanges.