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Informist, Saturday, Nov. 23, 2024

 

MUMBAI – The Securities and Exchange Board of India has proposed diversifying ownership structure of clearing corporations, currently practically wholly-owned by stock exchanges, in a manner that will lead to the shareholders of the bourse directly owning shares of the parent and the parent exchange not having any shareholding in them. SEBI made this proposal in a consultation paper Friday on review of ownership and economic structure of clearing corporations.

 

In this key proposal, SEBI said, "The entire shareholding of a CC (clearing corporation) could be allotted to the existing shareholders of exchanges...this would allow for a clean break of the CC from its parent Exchange." The market regulator believes the dominance of the parent exchange "invariably" exposes a clearing corporation "to the expectations of shareholders of the parent exchange" with the financial statements of the clearing corporation being consolidated with the parent exchange.

 

Further, according to SEBI, the regulations on stock exchanges and clearing corporations currently prohibit the listing of clearing corporations due to the crucial role they play in risk management for public interest and the need to ensure that "commercial considerations do not come in the way of their operations". But the regulations allow exchanges to list which "leads to the vicarious listing of its subsidiary CC".

 

There are five SEBI-registered stock exchanges in the country today--National Stock Exchange of India Ltd., BSE Ltd., Multi Commodity Exchange of India Ltd., National Commodity & Derivatives Exchange Ltd., and Metropolitan Stock Exchange of India Ltd. Of these exchanges, BSE and MCX are currently listed, while NSE's initial public offering application is currently with SEBI for approval.

 

The proposal for the clean break of the clearing corporations from the parent exchanges, however, according to SEBI, would be implementable only under two conditions. SEBI is not sure whether clearing corporations are excluded from the purview of the Payment and Settlement Systems Act, 2007 which provides for the regulation and supervision of payment systems in India under the authority of the Reserve Bank of India.

 

SEBI said it is consulting with the RBI on this matter. A scrutiny of the Payment and Settlement Systems Act, 2007 shows there is a clause saying "nothing contained in this Act shall apply to stock exchanges or the clearing corporations of the stock exchanges."

 

Another condition for the "clean break" proposal to work will be to get SEBI board approval to amend the regulations for exchanges and clearing corporations that require an exchange to own at least 51% of the clearing corporation. If the two conditions are not met, SEBI has made an alternative proposal of "a pro-rata distribution of 49% of shareholding of a clearing corporation to the existing shareholders of the parent exchange". Further, SEBI said the balance 51% would remain with the parent exchange but would be required to bring it down to 15% or lower within five years.

 

SEBI said notwithstanding its proposal to pass on the clearing corporation's shares to the shareholders of the parent exchange, the clearing corporations will still not be allowed to list as is the case under current regulations. This implies that the dispersed non-exchange shareholders in a clearing corporation's will not be able to trade in the shares based on pricing discovered on a stock exchange.

 

The market regulator has invited feedback from the public, investors, and market participants on these proposals by Dec. 13.  End

 

Reported by Rajesh Gajra

Edited by Akul Nishant Akhoury

 

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