Report of the Committee for Review of Ownership and Governance of Market Infrastructure Institutions

The Bimal Jalan-headed committee that was set up by the Securities and Exchange Board of India (SEBI) to review the structure of market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations and depositories, has proposed that such entities be prohibited from getting listed.

The proposal, if accepted, may hurt the businesses of such entities and prevent new entrants from drawing investors as shareholders may find it difficult to exit their holdings with sufficient gains in the absence of a public offering.

Sebi formed the seven-member committee in February, chaired by former governor of the Reserve Bank of India Jalan, to review the ownership and governance norms of MIIs and suggest changes.

The panel says such entities should not become a vehicle for attracting speculative investments. Further, MIIs being institutions, any downward movement in its share price may lead to a loss of credibility and this may be detrimental to the market as a whole,” it said.

To ensure that MIIs maintain the required transparency and corporate governance norms, the panel suggested that listed company standards be applied to them, with the information posted on the website.

The main recommendations of the panel are:

·         Prohibit stock exchanges, clearing corporations and depositories from getting listed.

·         Allow anchor investors to hold up to 24% in a stock exchange.

·         Restrict holdings of a stock exchange in a depository at 24%.

·         No trading member to be on the board of stock exchanges.

·         Stock exchanges to maintain net worth of Rs. 100 crore at all times; clearing corporations to have a net worth of Rs. 300 crore.

·         Compensation of the key personnel at MIIs to be a fixed sum without any variable component linked to the commercial performance. 

For detailed discussion see here and for downloading the report click here.