Mumbai: The government has allowed an individual foreign investor to hold up to 15% in an exchange, up from the current 5%, according to changes announced as part of the Union budget.
“Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5% to 15% on par with domestic institutions. This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices," the budget documents read.
According to Prithvi Haldea, managing director, Prime Database, a primary market tracker, 15% is a considerable stake for a foreign investor to be strategically invested in an exchange.
“The current threshold of 5% was allowing the foreign shareholder to be just a trading investor without any strategic alliance and without a say in the operations and development of the exchange. In my view, any investor who wants to be invested strategically in an exchange should be allowed to hold even higher stake, say at 26%," said Haldea.
“This is expected to improve the functioning of Indian stock exchanges and bring them on par with the best exchanges in the world. This will also help attract more investments in India by creating stronger links with the best foreign exchanges," said Ashishkumar Chauhan, MD & CEO, BSE.
“NSE has always aligned with the Govt policies. In any case, the exchange is always for implementation of global best practices and technology. We will evaluate accordingly, whenever such proposals come," said an NSE spokesperson.
The proposal was first mooted by capital markets regulator Securities and Exchange Board of India (Sebi) in 2012, but was turned down by the Bimal Jalan committee set up for amendments to Stock Exchange and Clearing Corporations (SECC) regulations.
In June 2014, Sebi once again proposed this to the ministry, arguing that the exchange space is now mature enough to handle higher participation from a single foreign investor.
In November last year, the finance ministry wrote to the market watchdog for its feedback on allowing an individual foreign shareholder to hold up to 15% in an exchange. As per an Economic Times report on 31 December, Sebi informed the ministry that there were no regulatory concerns on allowing a single foreign investor to have a higher stake in stock exchanges.
The change in rules may pave the way for foreign exchanges to increase their stake in Indian counterparts.
Singapore Exchange Ltd and Deutsche Boerse AG currently hold 4.9% each in BSE Ltd. In the NSE, the top foreign shareholders include Gagil FDI Ltd (Cyprus), GS Strategic Investments Ltd, SAIF II SE Investments Mauritius Ltd and Aranda Investments (Mauritius) Pte Ltd. They hold 5% each.
Mint reported on 26 February that the Sebi board on 12 March will take up for discussion the proposal to increase foreign shareholding in stock exchanges. With the government giving the proposal a nod, Sebi will likely finalize guidelines for the same at its board meeting.