Sebi makes listing easier for stock exchanges4 min read . Updated: 01 Dec 2015, 10:52 AM IST
Markets regulator amends existing SECC regulations to make it easier for the stock exchanges to list their shares through an IPO
Mumbai: The Securities and Exchange Board of India, or Sebi, on Monday amended the existing stock exchanges and clearing corporations (SECC) regulations to make it easier for the stock exchanges to list their shares through an initial public offering (IPO).
The move comes in response to demands from investors in stock exchanges, such as the National Stock Exchange Ltd (NSE), to allow for listing of the exchanges which can provide them an option to exit their investments.
In June 2012, Sebi allowed stock exchanges more than three years old to list their own shares through an IPO after accepting recommendations of the Bimal Jalan committee that framed guidelines for market infrastructure institutions.
However, certain clauses in the existing SECC norms were acting as a barrier for stock exchanges to list their shares.
Following a board meeting on Monday, Sebi said it accepted the proposal to facilitate listing of bourses, subject to certain safeguards and procedures with respect to shareholding norms, fit and proper criteria of shareholders, and other issues of conflict of interest.
In order to ensure that every shareholder is “fit and proper", each applicant will be required to make a declaration to this effect at the time of making an application for an IPO or offer for sale (OFS), Sebi said.
This is a significant departure from the current position, where the regulator takes a call on who is “fit and proper".
“Towards ensuring compliance that every shareholder be fit and proper, each applicant shall be required to make a declaration to this effect at the time of making an application during IPO/OFS. Sebi will also issue necessary procedures to ensure compliance of the provisions, post listing," said Sebi.
The shareholding threshold of 2%, 5% or 15% will be monitored through depository mechanism, it added.
The markets regulator said as far as maintaining 51% shareholding with the public and 49% with trading members, associates and agents is concerned, a mechanism has to be put in place so that an approval of the listed stock exchange is taken as and when the holding of trading members or associates or agents reaches a limit of 45%.
“It is welcome news for us that Sebi has responded to investor feedback for listing of the stock exchanges," said Sohil Chand, managing director, Norwest Venture Partners which holds about 2% in NSE. He added that most institutional investors will not have trouble meeting the fit and proper criteria. “The ball is now in the court of NSE since Sebi has given the go-ahead."
A spokesperson for NSE said that the exchange is studying the proposed circular. “It is too early to comment," the spokesperson said.
At the 23 November meeting with shareholders, the NSE management had suggested that it would want to go ahead with listing of shares only on its own exchange, Mint had reported last week.The NSE management also indicated that the creation of a holding company is a prerequisite for a listing, Mint reported.
Meanwhile, Asia’s oldest bourse, BSE Ltd, which had filed its draft red herring prospectus (DRHP) with Sebi more than three years ago, has been awaiting a go-ahead from the regulator.
“We welcome the Sebi move. We will be able to comment once the detailed regulations are published. BSE will try to expedite the listing process based on the regulations. Listing of exchanges is expected to bring additional transparency to their working," said a spokesperson for the BSE.
BSE’s public offer will create exit route for many of its existing shareholders. The exchange has 6,000-odd shareholders, who want to cash in on their shares. But the extent of dilution will depend on the valuation of the exchange.
In order to effectively implement the provisions of listing of its associates on listed stock exchanges, the definition of associates is being appropriately amended, said Sebi, adding that stock exchanges shall be classified as infrastructure company under Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2009.
Separately, the Sebi board also said stock exchanges need no longer transfer 25% of their profits to the SGF (settlement guarantee fund) of the clearing corporation, considering sufficient availability of SGF resources. This is expected to help improve the valuation of exchanges if and when they choose to list.
Sebi also said it would not proceed with creating a single clearing corporation.
“It is a step in the right direction. We appreciate that Sebi has taken this up as its lead agenda item in the meeting," a senior official at a private equity fund, which is an investor in the BSE, said on condition of anonymity.
“While previously also they allowed listing, this announcement adds some clarity on the percentage of shareholding. They have also clarified on the clearing corporation and the SGF that there is already enough money in the fund," he said.
“Our understanding, from Sebi’s statement, is that the ‘fit and proper’ condition will apply only to an IPO and OFS and won’t apply to secondary market transactions, but one will have to wait for more clarity on the same," he said, adding that currently, as an investor in BSE, the PE fund he works for gets itself certified “fit and proper" from Sebi every quarter as its shareholding is above 2%.