By tilting its definition of ‘anchor investor' to fit only public financial institutions and scheduled commercial banks the Committee has effectively shut the door on other entities.
The Bimal Jalan Committee on the ownership and governance architecture for stock exchanges has virtually endorsed the National Stock Exchange model for future stock exchanges in the country. This becomes clear from the recommendation that the existing norm of five per cent ceiling on ownership in a stock exchange be tweaked to permit ‘anchor investors' to hold up to 24 per cent and aggregate of such investors to hold up to 49 per cent. While on the face of it this does appear to support well-heeled institutional investors or high net worth individuals to come forward to set up a market for trading in equity and other related instruments, by tilting its definition of an ‘anchor investor' to accommodate only public financial institutions and scheduled commercial banks the Committee has effectively shut the door on the prospects of any other entity entering this field. This is not to suggest that the NSE model has not served the interests of Indian capital market well. Indeed if anything, the reputation for a sophisticated and well developed market for corporate instruments that India has acquired in recent years is owed largely to the innovation of electronic screen-based trading by the NSE when it commenced operations in 1994.
But the larger question is whether the economy could visualise alternative models of ownership of stock exchanges. The Committee quite rightly recognises that there is something to be said for a well-dispersed ownership arrangement comprising institutions and retail investors helping in reducing the likelihood of decisions being made in the interests of any particular segment of the market. True, it has also referred to the possibility with a well diversified ownership compounded by restrictions on maximum stake that an investor can acquire, there is a risk of investor apathy creeping into the management of stock exchanges. Thus, while there are two opposing arguments one looked in vain for some explanation as to why the Committee felt that a financial institution sponsored, concentrated ownership model is best suited for setting up a stock exchange. This is all the more unfortunate in as much as the Committee underscores the vital role that stock exchanges perform in capital formation in an economy, and ownership structure has implications for an efficient regulatory framework.
The complicated structure of a ceiling on profits of stock exchanges linking fair returns to yields on 10-year gilts and premiums for risk and illiquidity of investments that the Committee has recommended (listing of shares of an exchange has been ruled out) is a throw back to the era of licences and price controls. Perhaps this was inevitable as the Committee's principal recommendation virtually rules out fresh entrants.
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