Mumbai: The National Stock Exchange (NSE) management is trying to further delay a public sale of its own shares by setting preconditions to the process, three shareholders who attended a meeting with the management said.

At the 23 November meeting attended by all of its Indian and foreign shareholders, the management of the unlisted bourse insisted on listing its shares on its own exchange, as opposed to the stock market regulator’s view that exchange’s shares should be listed on a rival exchange, also called cross-listing. Its second pre-requisite ahead of listing is to create a holding company, under which the exchange business and the non-regulated businesses will be held as separate entities, the persons quoted above said.

Sohil Chand, managing director at Norwest Venture Partners who attended the meeting, said demands on self-listing and restructuring were tactics to delay the listing further. “Every time, they come up with a new excuse to delay the listing further.

First it was the Jalan committee report, then SECC regulations, then SGF, followed by the Sebi-FMC merger and now there is self-listing," said Chand. Norwest holds a 2.11% stake in NSE.

Chand’s reference is to the recommendations of a committee appointed by the Securities and Exchange Board of India (Sebi) headed by Bimal Jalan on ownership and governance of market institutions, Sebi’s stock exchanges and clearing corporations (SECC) rules and the settlement guarantee fund (SGF) to which exchanges must transfer a fixed share of their profits.

This isn’t the first time the investors are complaining, though.

Shareholders desperate to cash out in an initial public offering (IPO) have repeatedly written to the NSE management and made representations. In October, 17 foreign investors in the NSE and rival BSE went a step further and wrote to the finance minister to push for an IPO. Others have tried to sell shares to various investors ahead of the listing, albeit at relatively low valuations. Economic Times reported on 21 October that UK-based private equity fund Actis has agreed to sell its stake in NSE at the same valuation it had purchased it eight years ago.

In September, IFCI Ltd sold some of its NSE shares to US-based fund Deccan Value Investors Lp at similar valuations.

The NSE management which now wants to self-list, did not speak up when Sebi rejected self-listing of exchanges as early as 2012, Chand said, adding none of the shareholders are happy with the new pre-conditions.

“Shareholders are fine with cross-listing and none of the shareholders have asked for self-listing. The management’s argument is that NSE is a more liquid exchange and that shareholders will be deprived of the ability to trade. Also, they said that the exchange will have to disclose sensitive information to the BSE if it has to list on the exchange," said Chand. However, according to him, listing involves submitting a prospectus which is anyway a public document; so the argument of disclosing information only to rival BSE doesn’t make sense.

Another foreign investor who attended the meeting said even though the management now prefers self-listing, it was yet to formally write to Sebi for clarifications on the same. He requested anonymity. Sebi’s SECC regulations specify cross-listing, and any regulation change is not expected to occur soon.

The original regulations themselves were issued about 15 months after the Jalan committee submitted its recommendations.

Shareholders also raised concerns that creating a holding company will affect NSE’s valuations. “Holding companies trade at a discount and regulated businesses trade at a different multiple than unregulated ones. The management did not provide any answers to these questions," the investor mentioned above added, adding on the restructuring front too, NSE was yet to write to Sebi for clarifications on the process.

An NSE spokesperson said over the phone that the exchange is gearing up for listing and that the process has been set in place, without giving details.

Prominent shareholders of NSE include Life Insurance Corp. of India (LIC), State Bank of India (SBI), Goldman Sachs Inc., Tiger Global Holdings and Citigroup Strategic Holdings Mauritius.

Sebi set up a seven-member panel in February 2010, headed by former Reserve Bank of India governor Jalan, to review ownership and governance norms for exchanges, depositories and clearing corporations. The panel, among other recommendations, said bourses should not be allowed to list.

But Sebi, while approving most recommendations of the panel, allowed exchanges to list, provided the exchange’s regulatory and commercial functions were segregated to prevent any conflict of interest. It said exchanges could list after they put in place appropriate mechanisms.

The problem is different at rival BSE.

BSE, which filed an application for an IPO after Sebi favoured exchanges listing, is still waiting for regulatory approval.

Rahul Mehta, director at Argonaut Private Equity and an investor in BSE said the exchange applied for listing in 2013, but has not received permission to list yet. “At the last BSE AGM in September, domestic, international and retail shareholders have passed a resolution for listing of the exchange and setting up an IPO committee," Mehta said.

“We believe that BSE is a great model of governance, innovation and technology. It is IPO-ready and should be permitted to list. Listing of BSE will give Indian capital markets increased transparency and vibrancy by showcasing India’s oldest and fastest exchange to the international investor community." he added.

According to Prithvi Haldea, chairman of Prime Database, a primary market tracker, exchanges don’t have the incentive to list right now, as they do not need capital for their business. “It is the existing institutional investors/shareholders who are exerting pressure on the exchanges to push ahead with listing because they need to exit," he said.

Ultimately, Sebi will have to play a decisive role as to when and how the exchanges get listed, he said.

“Sebi has to ensure that on a sustainable basis, the regulatory role of the exchanges does not come in conflict with its commercial functions," added Haldea.

Vishwanath Nair contributed to the story

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