The market regulator has said the country’s stock exchanges are “public authorities” and, therefore, have to disclose information, if asked to, under the provisions of the Right to Information (RTI) Act.
Currently, any request for information from the stock exchanges has to be routed through Securities and Exchange Board of India (Sebi). While this will make it easy for investors to obtain information from the exchanges, some experts said it could lead to disclosure of sensitive information regarding trades and could be misused by people. Representatives of India’s largest exchange, the National Stock Exchange, said they were studying the matter and would need more time to respond.
The RTI Act defines a public authority as one that is created by a notification issued by the government or a law passed by Parliament. Stock exchanges are owned by private investors or brokers and have independent managements. NSE is an exception—the majority equity of some of its large shareholders, such as the State Bank of India, is owned by the government. Sebi has said that despite their independence in operations, stock exchanges ought be classified as public authority as they can start business only if they are notified by the government.
Sebi’s written submission to the Central Information Commission (CIC), the body that oversees applications made under the RTI Act, comes in the context of requests by investors for information from the National Stock Exchange and the Jaipur Stock Exchange. Both exchanges had refused to provide the information and the investors appealed to CIC.
The commission had written to Sebi asking for its opinion and the regulator has replied that the exchanges were indeed beholden to provide information under the RTI Act.
Stock exchanges collect detailed information on trades executed by brokers and foreign institutional investors, including some confidential information on the identity of the clients, said a person associated with one of India’s leading exchanges who did not wish to be identified. It is usually brokers who want such information, added this person, and “history often shows that (only those) brokers suspected to be part of any price manipulation move seek information on other brokers.”
Sebi has stringent rules regarding the leakage of price-sensitive information.
The RTI Act should not apply to stock exchanges, said Somasekhar Sundaresan, partner, J Sagar Associates, and a specialist in laws regarding securities. He added that exchanges were commercial pro-fit-oriented organizations operating under licensing terms imposed by Sebi. “A lot of information with stock exchanges is sensitive data and the scope for misuse of the law is high,” said Sundaresan. People who really wanted to get information for the right reas-ons, he added, could do so ev-en now because “there would be a legal framework within the exchange’s by-laws” or by using “the RTI Act through Sebi.”
In its response to CIC, Sebi wrote that the Union government has considerable powers over stock exchanges, including the right to call for periodic returns, amend by-laws and supersede the governing body of the exchange. The regulator inferred that this was sufficient evidence to term exchanges “public authorities”. “It may, however, be noted that the New York Stock Exchange (in contrast) was not found to be an agency of the state under the Freedom of Information Act,” Sebi’s response added.
Independently, the market regulator has forced those Indian exchanges owned and controlled by broker-me-mbers to reduce their holding to 49%. NSE was never owned by broker members; it was, instead, promoted by a few financial institutions. BSE, however, was owned and controlled by broker-members until the middle of May. It’s now only 48-49% owned by broker-members.