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A File photo of the National Stock Exchange. NSE said that the letter to the finance ministry sought to address macro concerns for the bourses. Photo: Mint
A File photo of the National Stock Exchange. NSE said that the letter to the finance ministry sought to address macro concerns for the bourses. Photo: Mint

NSE bypasses Sebi, writes to finance ministry on listing stand-off

NSE's letter comes against the backdrop of diverse views on the issue of exchange listings

Mumbai: The National Stock Exchange of India (NSE) Ltd has written to the finance ministry, bypassing the capital markets regulator, raising concerns over the norms for listing of exchanges, according to two people familiar with the development. The letter also dwells on the issue of foreign shareholding in exchanges, they said, requesting anonymity.

NSE’s letter comes against the backdrop of diverse views on the issue of exchange listings. While the Securities and Exchange Board of India (Sebi), in the recently reviewed norms, allowed for cross-listing of exchanges, NSE has said it prefers to list on its own exchange. Cross-listing refers to the listing of an exchange on a rival exchange platform.

“S.B. Mathur, chairman of NSE, wrote to the finance ministry earlier this month highlighting the fact that the amended Stock Exchange and Clearing Corporations (SECC) regulations have not allowed for self-listing which is proving to be a hurdle in NSE’s listing plans," said the first person quoted above.

According to the second person, the letter also asks the ministry to look into the foreign shareholding norms for exchanges to ensure that majority shareholding and control of the exchange should firmly rest with domestic investors.

Currently, foreign investors can hold up to 49% in exchanges but no foreign entity can hold more than 5%. On 10 December, The Economic Times reported that the shareholding cap for foreign bourses in domestic stock exchanges may rise to 15% from the current 5%.

In an email response, the NSE said that the letter to the finance ministry sought to address macro concerns for the bourses.

“The letter, in spirit, highlights few macro things. Since NSE is an important domestic institute of repute, the chairman apprised the ministry of few well known facts. Along with other things he highlighted that domestic entities should continue to hold majority shareholding in NSE at any point in time. At the same time, it was mentioned that long term value of the shareholders should be protected and NSE listing is primarily requested for enabling exit for some shareholders," said an NSE spokesperson.

On the issue of choice of platform for listing, the NSE said it would prefer its own platform. “The exchange being the institution of choice here today, is adequately capitalized. We reiterate, the letter was written keeping in mind the economic significance of NSE, not merely possible listing of NSE which the board and management have both confirmed (that they are all for listing) many times earlier," added the spokesperson.

While NSE is keen on self-listing, rival exchange BSE Ltd has said that it has no problems with a cross-listing. In a letter dated 22 January, BSE told Sebi that it is fully compliant with Sebi regulations and is ready for an initial public offer (IPO), Mint reported on Friday.

NSE’s decision to bypass the regulator and write directly to the government has not gone down well with Sebi, according to a third person familiar with the regulator’s thinking.

“Any file related to listed entity is bound to be referred to Sebi as it is the concerned body. Ideally, an entity should wait for the regulatory feedback," said this person requesting anonymity.

Sebi did not respond to an email sent on Friday.

Experts agree that NSE’s move to write to the finance ministry violates protocol. “Sebi is the concerned regulatory body so any policy making decisions for exchanges and listed space has to be cleared by it. Entities are known to refer matters to finance ministry but the ultimate power rests with Sebi," said an industry participant, who declined to be named due to the sensitivity of the matter.

Meanwhile, shareholders of NSE continue to push for a listing of the exchange at the earliest so they can exit their investments. The State Bank of India, the largest shareholder in NSE, has said that the exchange should list in order to give investors an exit opportunity.

“From the shareholders point of view a listing grants them liquidity and adequate price discovery to exit their holdings at the right valuation. The listing exercise has to be initiated by the management, but shareholders have a final say on listing, said R.S. Loona, managing partner in Alliance Corporate Lawyers (a legal firm), former executive director (law), Sebi.

“As far as the issue of self listing is concerned, which has led to the current stalemate for listing of NSE, cross-listing was kept in the SECC to avoid conflict of interest. Exchanges are the first line of regulators. If an exchange is listed on itself then there is a possibility of the regulatory function getting hampered," Loona added.

Vaneesa Agarwal, an independent law practice professional, said the issue of exchange listings is not an easy one. “Globally, regulators frown upon self listing. Some of the regulators require at least one cross-listing as well. Equally, significant conflict of interest may arise whenever stock exchanges regulate a competitor," said Agrawal, adding that investors are within their rights to push for a listing to secure an exit from their investment.

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