SEBI chairman M. Damodaran has the enviable track record of  heading two powerful yet troubled financial institutions — UTI and IDBI — before he came to his present position. Known for his frank and forthright views, Damodaran is not one to mince words. In a conversation with Arun Kumar, he outlines the imperatives before the financial markets.

Securities and Exchange Board of India (SEBI) has prohibited Delhi Stock Exchange from going in for a strategic sale. What is the way forward for these regional stock exchanges to demutalise since they don’t transact any business?

Demutualisation does not mean giving majority or controlling stakes in the stock exchanges to individuals or listed companies. Let me clarify that the stock exchanges are first-level regulators. The power vested in the first-level regulator cannot be transferred to any individual or company. The spirit of demutualisation means divesting 51 per cent stake in the market through the public issue route and this in turn helps in diversifying the 51 per cent ownership in the hands of common investors.

As far as demutualisation is concerned, it is upto these stock exchanges to first put in place a business model. If they do not have a business model, then they have no reason to be there in the market. It is up to them to decide whether they want to merge with their subsidiaries or have an alternate business model. As far as the companies which are listed on these regional bourses and not anywhere else, there will be an alternate arrangement for trading.

We have been hearing for some time that you are on the verge of relaxing the de-listing norms for small companies. What is the progress on this front and when will it be implemented?

The regulators and the stock exchanges are working on this issue. Bombay Stock Exchange, which has initiated the move of compulsory de-listing earlier, has stopped it for some time. Now we are close to formalising the guidelines and expect to take necessary board approval and other stipulated requirements.

Once these things are in place, we will shortly come out with the guidelines. The intent of such guidelines is that there are a number of companies, which were listed on the bourses over the last many years for some reason or other, have lost their relevance to remain listed.

The endeavour of the regulators is to make de-listing process easier and cost effective while protecting the interest of investors.

The deadline for the implementation of clause 49, which makes it mandatory for companies to have 50 per cent of the directors on the boards of listed entities   independent. In addition, it also stipulates that the CEO and CFO need to certify the annual accounts. Don't you think some of the legal requirements are very costly and probably more complicated than even in the United States which is considered to be the most regulated market? In fact, even in the United States’ market there is lot of resistance to Sarbanes Oxley Act.

Recently, I was addressing a CEOs meeting in a developed market and CEOs there also raised concerns but at the same time,  long-term investors like pension funds and insurance funds have supported such a move and, in fact, argued that they are even willing to fund such expenses. Over the time, such regulations help the companies in rewarding the stakeholders. These fund managers have actually expressed their willingness to fund such expenses. All the industry bodies have welcomed this move.

In the recent past, we have witnessed a slew of block deals in the market. Don't you think that this creates volatility?

We are aware of this issue and have managed to resolve it. Effective this Monday, both National Stock Exchange and Bombay Stock Exchange will have dedicated windows for half an hour in the morning, between 9.55 to 10.25 for such block deals. This will help in controlling the volatility in the market.