Sebi seeks investment cap hike in bourses

6 Sep 2008, 0116 hrs IST,TNN




MUMBAI: Market regulator Securities and Exchange Board of India (Sebi) has proposed to raise individual holding limit in stock exchanges to 15% for certain types of entities from the existing 5%. Sebi on Friday said that stock exchanges, depositories, clearing corporations, banks and insurance companies may be permitted to own up to 15% in an Indian bourse. For all other types of shareholdes, however, the holding cap will remain at 5%, the market regulator said in a discussion paper released for public comment.

''Sebi has also been receiving requests from certain quarters that the present limit of 5% is acting as a deterrent for attracting long-term anchor/strategic investors in stock exchanges,'' the regulator said in the discussion paper. In the last two years, National Stock Exchange (NSE), the largest stocks exchange in India, had sold stakes to top foreign investors like NYSE Euronext and Goldman Sachs. On the other hand, The Bombay Stock Exchange (BSE), the oldest bourse in Asia, had Singapore Stock Exchange (SGX) and Deutsche Boerse (DB), each buying 5% stake in the exchange.

The Sebi proposals, if passed, will allow foreign bourses like NYSE, SGX and DB to hike their stakes in the two Indian bourses. At present SGX and DB are in the process of getting regulatory approvals for one board seat each on the BSE. In turn, BSE holds 5% in Calcutta Stock Exchange, bought last year.

At present other than NYSE and Goldman Sachs, NSE's shareholders include LIC, SBI, ICICI Bank and a host of other banks, insurance companies and financial institutions (FIs). Other than a large numbers of brokers, BSE too has a host of banks, insurance companies, FIs, corporates and high networth individuals among its shareholders.

Current rules allow a combined foreign ownership of 49% in Indian bourses of which 23% is allowed for foreign institutional investment while foreign direct investment (FDI) is capped at 26%. What this means is that in case a stock exchange is not listed, foreign shareholders could hold only upto 26% in it. At present, there are 18 recognised stock exchanges in India that have been corporatised, in which 51% is held by shareholders other than trading members, the Sebi paper said. The market regulator said feedback on its proposals had to be submitted by September 19.

Recently, SBI's merchant banking wing SBI Capital Markets reduced its holding in NSE from 5.6% to 4.3%. Sebi's proposals, if implemented, will also give a breather to certain entities holding more than 5% in commodities exchanges also since they have been following similar regulations as applicable to stock exchanges. Currently, Goldman Sachs holds 7% stake in NCDEX, Fidelity International has 9% in the MCX, while Inter Continental Exchange holds 8% in the NCDEX.

They were given time till next June to pare their holdings to 5%. Sudip Bandhyopadhyay, chief executive of Reliance Money, which has a stake in commodity exchange NMCE, said the proposal, if implemented, will help in formation of new exchanges. The Sebi's discussion paper says that stock exchanges are public institutions.
Hence, as a matter of public policy, no individual investor should be allowed to hold a predominant position in them.