The Securities and Exchange Board of India is planning to revamp Securities Exchange and Clearing Corporation (SECC) regulations. With these proposed amendments, Sebi plans to raise the shareholding limit in exchanges and clearing corporations.
Speaking to Moneycontrol, a source close to the development said: “Sebi is working on a long-pending demand by exchanges and clearing corporations to increase individual and financial institution shareholding stake limits in exchanges and clearing corporations.”
The source added: “The regulator is considering increasing financial institutions’ shareholding stake from 15 percent to 26 percent in exchanges and clearing corporations, at par with banking regulations. The Reserve Bank of India has proposed a 26 percent shareholding limit in banks.”
Amit Tandon, Managing Director of proxy advisory firm IIAS, said: “The issue regarding ownership is similar to that in banks. Here, too, you want ownership to be widely dispersed, with no ‘controlling’ shareholder. Like RBI is thinking about increasing the limit to 26 percent, Sebi too needs to do so".
Similarly, Sebi plans to raise the ceiling on individual stakes from 4.99 percent now.
The regulator has not yet responded to queries sent by Moneycontrol.
Speaking to Moneycontrol, an exchange official said: “In the current shareholding framework, no one is interested in taking stakes in exchanges and clearing corporations as they get only a 15 percent stake, which is not significant. With a 15 percent stake they get hardly any board seat.”
More skin in the game
Anil Chaudhary, Partner with Finsec Law Advisors, told Moneycontrol: “The current regulatory framework of permitting only a low threshold of shareholding by entrepreneurs and investors in exchanges and clearing corporations may be detrimental to the growth and development of the securities market in the long run.
“The restriction inhibits new players from entering the space, perpetuates the monopoly of the few companies and reduces the space of technological innovation, which new-age companies may bring to the market,” Chaudhary pointed out.
“If Sebi permits higher thresholds, it would allow lead investors and promoters to have more skin in the game, which will eventually lead to higher accountability and investor confidence and competition in the space of market infrastructure intermediaries,” Chaudhary added.
Sebi has been thinking on this front for a long time. In the last two decades only one exchange has been established, which was also done with the help of the government, said a retired Sebi officer. “Now, it is time to increase competition in this space and decrease the monopoly of any particular exchange. This measure will be helpful in mergers and acquisitions also.”
“Sebi is allowing anchor investors to launch an exchange with a higher stake and will give them significant time to reduce the stake,” said another source, who is part of the discussions. “Sebi may give them more time, say 10 years, to reduce the stake in exchanges and clearing corporations.”
The regulator may issue a public discussion paper on this issue soon.
Shorter tenures for MDs and CEOs?
The regulator may also come out with new regulations on the tenure of the managing directors and chief executive officers of exchanges and clearing corporations.
Pointing to this possibility, a source told Moneycontrol: “Sebi is thinking to restrict the duration to a single tenure for Managing Directors and Chief Executive Officers of exchanges and clearing corporations. Currently, an MD can be appointed for two terms. This way, dependency on a particular person will reduce.”
IIAS’ Tandon, however, is not convinced about the wisdom of this move. He said: “The tenure of the CEO needs to be debated. You need to attract the right person and you need to give them sufficient time in the role. Will you be able to attract the right talent if the person knows that he or she just has a single tenure and cannot be re-appointed? I think not.”
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