Jalan panel proposals may face dilution

Jalan panel proposals may face dilution

New Delhi: The finance ministry will invite in January 2011, capital market stakeholders for consultations on the recommendations of the Bimal Jalan committee on ownership and governance of market institutions such as stock exchanges on account of their strong reservations to these, raising the possibility that key suggestions by the panel may be diluted.

Members of the Jalan committee will not be part of the consultation as their views are already in the public domain, a senior finance ministry official said, speaking on the condition of anonymity.

A decision on the implementation of the committee’s recommendations will be taken by the board of the capital market regulator, Securities and Exchange Board of India, (Sebi), the official, said. A timeline for implementation has not been fixed, the official added.

In January, Sebi set up the committee under former Reserve Bank of India governor Bimal Jalan to review the ownership and governance of market infrastructure institutions (MIIs) in India. The panel submitted its report in November, which was then placed in the public domain to invite comments till 31 December.

The recommendations of the committee include a cap on MIIs’ profits and a suggestion that stock exchanges be disallowed from public listing of shares.

Both the recommendations have been opposed by some stakeholders such as Bombay Stock Exchange (BSE) and MCX Stock Exchange (MCX-SX).

The finance ministry will collate views of all the stakeholders and then distill them into positions that are acceptable to as many stakeholders as possible, the ministry official, said.

With two stock exchanges, BSE and MCX-SX, clearly in favour of listing exchanges, the finance ministry’s attempt to forge a consensus would in all probability dilute Jalan committee’s recommendation to disallow listing of exchanges for now.

According to Jalan committee, The Securities Contracts (Regulation) Act, the umbrella legislation for securities market transactions and institutions, bundles the commercial and regulatory functions of the exchanges. Therefore, it is prudent to avoid listing stock exchanges right now as they also function as frontline regulators.

The official pointed out this situation had not prevented other exchanges such as New York Stock Exchange from listing.

“We shouldn’t be the last to do things," the official said, adding the ministry’s role will be restricted to forging a consensus.

Among the other controversial recommendations of Jalan committee is one associated with a cap of 5% on shareholding in stock exchanges.

The cap and limiting anchor investors to banks and public financial institutions drew adverse comment from a meeting on Tuesday organized by industry lobby group Confederation of Indian Industry (CII).

Given the high stakes of different stakeholders, there has been hectic lobbying to dilute the recommendations of the Jalan committee.

The CII meeting, which was an attempt to bring Jalan and some stakeholders face-to-face, was preceded by open letters and advertisements.

At the CII meeting, a representative of MCX-SX wondered if Jalan even had any idea about the contents of the report, forcing the moderator to step in to restrict the exchanges to issues.

The committee’s report, if implemented in its current form, will effectively end MCX-SX’s desire to trade in equities.