The recently amended regulations for listing of stock exchanges will bar an entity from trading and being listed on a stock exchange if it holds a fifteen per cent stake in it.
As per the board minutes released by Securities and Exchange Board of India (Sebi) the entity with such a substantial stake would be considered as an associate of the exchange.
"Companies which share common directors with that of a stock exchange or any of its subsidiaries, or who hold 15 percent of the equity share capital of a stock exchange would not be permitted to list on the same stock exchange," said Sebi in the board note.
This means that if any board member of the listed exchange is also on the board of a listed entity then the entity would not be able to trade on it. Else the board member would have to give up his/ her position on the board of the company or exchange.
This was a part of the initial Securities Exchange and Clearing Corporations (SECC) regulations due to which Keki Mistry of HDFC Securities had to give up his position on the board of BSE Ltd.
Another important criterion that was making it difficult for the stock exchanges to list was the examination of the 'Fit and Proper' criteria of shareholders.
To address the issue Sebi has allowed the shareholders to issue a self declaration of their fitness status.
"During the allotment process, each applicant would be required to provide self declaration. In the post listing scenario, each shareholder shall submit quarterly an undertaking to confirm that they are fit and proper," said Sebi.
As per Sebi regulations a fit & proper person is defined as someone with financial integrity, good reputation and has not faced any criminal or winding up regulatory orders.
"Ensuring that every shareholder of a stock exchange is fit & proper is to avoid any systemic risk. However, any such risk would arise if a shareholder with substantial shareholding is found to be not 'fit'. It would have served better if Sebi had provided a threshold for examination of shareholders. Examining every retail shareholder with small holding would be a compliance hurdle and lead to unnecessary paper work," said Tejesh Chitlangi, Partner, IC Legal.
An email sent to BSE, MSEI remained unanswered till the time of going to print.
NSE in a specific query to Business Standard stated that is too early to comment but that they would adhere to Sebi regulations.
If an entity acquires stake between 2 per cent and 5 per cent then the exchange would be required to seek approval from Sebi after the stake has been acquired. Above 5 per cent Sebi would clear all the stake holders and prior approval would be needed.
If any entity ends up taking above the limit cleared by the regulator then the additional shareholding, voting rights will be capped.
Additionally inspite of requests from interested parties Sebi has stuck to the original plan of not allowing self listing. Though, in the board minutes Sebi did observe that 90 per cent of exchanges in world are listed on itself.
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