Jalan panel report sparks off hectic lobbying

Jalan panel report sparks off hectic lobbying

New Delhi: Vicious lobbying, including open letters, advertisements and personal attacks, is underway among different stakeholders in the capital market over the recommendations of the Bimal Jalan committee on ownership and governance of market institutions such as stock exchanges.

The Confederation of Indian Industry (CII), an industry lobby, on Tuesday organized a meeting between former Reserve Bank of India (RBI) governor Jalan, two of his committee members, and stakeholders in the capital market to exchange views. The only stakeholder not represented was the retail investor.

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The meeting was marked by some sharp exchanges between stakeholders and committee members over a recommendation to disallow the public listing of exchanges, a personal attack by one of the stakeholders on Jalan, which resulted in an intervention from the moderator with a request to restrict conversation to issues and not personalities and veiled suggestions that the report did not reflect the majority view of the 29 stakeholders who deposed before it.

The committee was constituted by the Securities and Exchange Board of India (Sebi) to review the ownership structure and governance of market infrastructure institutions (MIIs) such as stock exchanges.

The committee, which submitted its report last month, concluded MIIs were “public goods". It suggested tight control over ownership and governance, and recommended stock exchanges not be allowed to sell shares to the public. The recommendation on listing and another one on capping profits dominated a large part of the discussion because MIIs have a large amount of private investment. The committee has recommended the subject be revisited in five years on account of the fast-changing nature of the capital market. Sebi will eventually take a call on the committee’s recommendations.

Subodh Bhargava, a former president of CII, who moderated the discussion, set the tone for what followed by admitting that the industry body had been unable to crystallize a consensus on the Jalan committee despite many sittings.

Venkat Chary, chairman of Multi Commodity Exchange of India Ltd, and Joseph Massey, managing director and chief executive officer (CEO) of MCX Stock Exchange Ltd (MCX-SX), were critical of the committee’s conclusions. Chary questioned the logic of looking at an exchange as a public utility and wondered if Jalan actually knew what had been written in the report. Bhargava intervened to ask participants to avoid personal attacks.

A Supreme Court judgement of April 2005 had brought stock exchanges within the ambit of the state. An exchange’s functioning is now subject to judicial review.

MCX, in its written response to the Jalan committee, which is posted on its website, said: “The evolution of stock exchanges into public utilities should be achieved in the interest of the public at large."

Massey claimed that 80% of stakeholders who deposed before the committee had expressed views that ran counter to the committee’s final recommendations.

The panel also agreed with Sebi’s view on the required shareholding pattern of stock exchange, thereby weakening the chances of MCX-SX receiving the regulator’s permission to trade in equities.

Some of the sharpest exchanges came over the listing of stock exchanges and capping of profits. Madhu Kannan, managing director and CEO of Bombay Stock Exchange Ltd (BSE), claimed the exchange’s trading members were given an implicit understanding that listing would be eventually permitted.

K.P. Krishnan, a member of the Jalan committee who was in finance ministry when some stock exchanges were asked to transform into joint stock companies, refuted Kannan and said there was never an implicit understanding. Moreover, none of the brokers spoke to the finance ministry then, he added. And Kannan was not with the BSE at the time.

The question of an implicit guarantee in listing exchanges has turned into a controversial issue drawing more than trading members of exchanges.

On Tuesday, MCX, which has a small stake in the National Stock Exchange (NSE), published an open letter in The Financial Express and The Economic Times to NSE’s management. “Without listing, minority shareholders feel trapped," MCX’s letter said.

Krishnan refuted Parekh’s interpretation and said there were no explicit guarantees in law or implicit guarantees in closed door meetings on listing of exchanges.