Regulations
Listing Our Stock Exchanges
Listing alone will bring about transparency and throw some light on their costs, operations, appointments and other dealings which remain hidden from the public eye today
 
After nearly 10 years of prevarication, misdirection, smoke-screens and false promises to institutional investors who were lured to invest in demutualised stock exchanges on the promise of listing, there seems to be serious pressure from the finance ministry to, finally, make it happen. The ministry, in turn, is under pressure from large institutional investors who are fuming at being trapped without an exit route. There are three reasons why things have come to a boil now.
 
First, in order to persuade brokers of the Bombay Stock Exchange (BSE) to accept demutualisation, the government and the regulator clearly indicated that exchanges would be listed as part of the processes Justice MH Kania had recommended in 2005. But the past 10 years have only seen a series of deliberate obfuscations by exchanges and the market regulator, engineered through the recommendations of carefully chosen committees. BSE’s investors, finally, ran out of patience and angrily moved a resolution at its annual general meeting held in September 2015 seeking approval for listing of equity shares of the BSE.
 
Investors in the National Stock Exchange (NSE) are just as incensed. Some 17 of them wrote to the prime minister and the finance minister requesting that the stock exchanges be listed. According to sources, these investors were far more emphatic at their personal meeting than in their letter outlining the benefits of listing. Some are so exasperated that they have gone public with their anger. 
 
The Mint newspaper quotes Sohil Chand, managing director at Norwest Venture Partners, saying this about the NSE: “Every time, they come up with a new excuse to delay the listing further.” He was furious about NSE’s plans to restructure operations, to create a holding company (which could negatively impact valuation) and its demand to self-list, rather than list on a rival exchange as prescribed by SEBI’s (Securities and Exchange Board of India’s) rules in April 2012. In another article in Mint, Mobious Philipose quotes Ravi Adusumalli, managing partner at SAIF Partners, as saying: “NSE says one thing officially on listing and takes a completely different stance privately with shareholders. This has been its strategy for the past many years.” He goes on to tell the columnist, “The NSE management has a fundamental lack of respect for shareholders. While NSE should be the standard for shareholders’ rights and corporate governance, it is anything but (that). They consistently work against shareholders to retain control and I firmly believe that they are against an IPO (initial public offering) because they do not want NSE’s actions and performance to be transparent.” This is a damning indictment of NSE’s management and we will come to it later. 
 
A second important reason for discontent is that the value of stock holding in the bourses is no longer soaring as it did over the past decade. At least two investors have exited the NSE at five-year old valuation through private deals. Investors are also beginning to be concerned at the tactics adopted by bourses to increase turnover and profits or hold on to dominant market positions. 
 
Thirdly, after the merger of the Forward Markets Commission (FMC) with SEBI, we already have one listed exchange in MCX which is no longer privately owned. It cannot suddenly be de-listed due to a merger of regulators nor can unfairly onerous rules be imposed after listing. So, a level playing field requires that exchanges like the BSE, which had applied for permission to list in 2013, should quickly get the go-ahead, with full clarity on rules. 
 
The combined pressure of these factors, probably, led to some quick decisions by the SEBI board at its meeting on 30th November on the listing of exchanges. It also addressed issues related to depositories and clearing corporations and the conflict of interest that may arise in disclosure and good governance rules under the listing agreement of stock exchanges. The SEBI board has classified stock exchanges as infrastructure companies at their request; it has also decided that 51% of the shareholding will be with the public and that the shareholding of trading members/ associates/ agents should not exceed 49%. Each and every ‘applicant’ (exchange) must make a declaration that all shareholders meet the ‘fit and proper’ norm, at the time of listing, and follow compliance procedures notified by the regulator afterwards. It is not clear how this can happen, since SEBI itself has passed strictures against innumerable brokers who are already shareholders of the BSE, if not the NSE. 
 
Despite the need for better clarity on a few issues, it seems almost certain that Indian stock exchanges will, finally, be listed. Only time will tell whether this will be good or bad for the Indian market because it is entirely dependent on the quality of regulation and supervision by SEBI. Market history shows that after touting professionally run bourses as the best thing to have happened in the Indian capital market space, we have allowed these to become ivory towers, where even their own shareholders complain about their functioning.
 
In 1999, when the NSE marked five years of its existence, I wrote in a newspaper column: “A careful study of stock market reforms indicates that in India, it was not the capital market regulator or the government, which drove the change towards automated trading systems and modernisation of stock exchanges. The National Stock Exchange (NSE), a mere market intermediary, through example, demonstration and sheer success forced a swift and relentless pace of change in the markets.” 
 
I had further written that neither the government nor the regulator had expected “NSE to emerge as a clean and efficient nation-wide trading system providing investors in 280 cities direct access to a single, safe and transparent system.” What an irony that, 20 years later, NSE’s own institutional investors are accusing it of lack of transparency and poor governance!
 
The argument for transparency, through listing, becomes even stronger when you recall an interesting article in Business Standard in 2006 titled “Listed Exchanges Pose Unique Problems”. It made a strong case against listing of bourses, based on the situation that existed then. The article argued that professional managers, who earn only a salary and have no financial interest in the profits of the exchange, worked better. Today, salaries at the bourses are among the highest in the private sector and even the regulator seems unclear about whether they are accompanied by fat stock options. This is important, because the Bimal Jalan committee had frowned on ESOPs (employee stock ownership plans) linked to profitability for stock exchanges. Conversations with SEBI insiders indicate that the regulator knows little about remuneration at the major bourses. Responses to RTI (Right to Information) queries also reveal that bourses have not felt the need to seek explicit prior approval of the regulator while creating new posts at senior levels with full clarity on compensation, role and responsibility. This suggests poor supersvision or regulatory capture—both are bad for the capital market. 
 
Another argument of the article in favour of not listing the bourses was that professionally managed exchanges would stand firm against the issue of market integrity or broker malpractices. This, too, seems doubtful, since the race between the exchanges for the past few years has been about market dominance, at any cost. The intensity of the inter-exchange warfare has somewhat reduced after the challenge from the MCX group vanished in the aftermath of the National Spot Exchange debacle.  
 
However, court battles and cases before the Competition Commission of India raised serious questions, not only about tactics adopted by the bourses to ensure market dominance but also the role and ability of the regulator in controlling them. 
 
And, yet, despite all possible pitfalls of listing the exchanges and concerns about excessive focus on increasing profits every quarter, listing alone will bring about transparency and throw some light on their costs, operations, appointments and other dealings which remain hidden from the public eye today. 
 

 

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COMMENTS

manoharlalsharma

2 years ago

I appreciate to read closely the delaying listing of boarses 10 years only,the investment of few lacs of citizens but when a citizen bye a residential flat to live with his family and share certificate issued becomes street play/in the hands of MC what happens? will u imagine?take a look with WP-8508/2003 @ Bombay HC.

Nitin

2 years ago

Excellent piece. I am not sure about "operations, appointments and other dealings which remain hidden from the public eye", but as far as Disclosures of Costs and Expenditures in Financial Statements are concerned, I'd say both exchanges are fairly transparent. Their respective annual reports provide detailed breakdown of all key revenues and expenses.

However, the NSE is a tad more transparent, as its website provides annual reports for all of the last five years, while the BSE's generosity stops at sharing annual reports for last two years only!

REPLY

Shirish Sadanand Shanbhag

In Reply to Nitin 2 years ago

I fully agree with Nitin's comment on this article on NSE listing.

Obama vows to destroy ISIS to overcome terrorism threat
In a rare address from his Oval office, President Barack Obama pledged to overcome the threat of terrorism by destroying ISIS with a relentless, strong and smart campaign that is consistent with American values.
 
"The threat from terrorism is real, but we will overcome it," Obama said Sunday night in a prime-time address four days after a Pakistani origin couple shot dead 14 people and wounded 21 others in San Bernardino, California to leave Americans unnerved.
 
"We will destroy ISIL and any other organization that tries to harm us," he said, using an alternate acronym for the Islamic State of Iraq and Syria (ISIS), as he urged Congress to take action on several fronts.
 
At the same time, he asked Americans not to turn against Muslim friends and neighbours and turn the conflict with ISIS into a war against Islam.
 
It was only the third time that Obama was addressing the nation from his office in the White House to reflecting the gravity of the situation.
 
He last spoke from the Oval office in August 2010 to discuss the end of US combat operations in Iraq and a few months earlier on June 15 to talk about the catastrophic oil spill in the Gulf of Mexico.
 
The San Bernardino attacks were perpetrated by Syed Farook, 28, who was born in Chicago to Pakistani parents and raised in Southern California and Tashfeen Malik, his Pakistani wife who had pledged allegiance to the leader of ISIS online.
 
Taking note of the fact that Malik had came to the US in 2014 on a fiancee visa, Obama said he had "ordered the Departments of State and Homeland Security to review the visa programme under which the female terrorist in San Bernardino originally came to this country."
 
Urging "high-tech and law enforcement leaders to make it harder for terrorists to use technology to escape from justice," he said: "We constantly examine our strategy to determine when additional steps are needed to get the job done."
 
He said that so far, there was no indication that the attack was directed by a terrorist organization overseas or that they were part of a larger conspiracy at home.
 
"But it is clear that the two of them had gone down the dark path of radicalisation, embracing a perverted interpretation of Islam that calls for war against America and the West," he said. "This was an act of terrorism designed to kill innocent people."
 
Obama said the terror threat has evolved since the days of the 9/11 attacks, but did not announce major changes to his plans to fight ISIS.
 
He outlined a four-pronged strategy: hunt down terrorist leaders in every country where they are; provide training and equipment to Iraqi and Syrian forces fighting ISIS on the ground; stop ISIS operations, financing and recruiting; and establish a ceasefire and political resolution to the Syrian civil war.
 
"Our success won't depend on tough talk or abandoning our values or giving into fear. That's what groups like ISIL are hoping for. Instead we will prevail by being strong and smart, resilient and relentless, and by drawing on every aspect of American power," he said.
 
Finally, focusing on what the country would not do, Obama reiterated a pledge to avoid a "long and costly ground war" in Iraq or Syria and implored Americans not to turn on all Muslims.
 
He called it the "responsibility of all Americans of every faith to reject discrimination," religious tests for entrance to the country or proposals to treat Muslim Americans differently.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Judiciary will protect India's core values: CJI
A strong and independent judiciary was capable of protecting people from attacks on the inclusive values of Indian society, Chief Justice of India T.S. Thakur said on Sunday.
 
CJI Thakur, who took charge as India's top judge on Sunday, also asserted that there would not be any tolerance towards corruption and deviant behaviour in the judiciary, and stressed that the task of finding suitable people to be appointed judges to fill vacant posts was not an easy task. 
 
He also endorsed the Delhi government's decision to allow only even and odd numbered cars to ply in Delhi on alternate days from January 1 in a bid to curb rising air pollution.
 
"As the head of the institution that upholds the rule of law and protects the constitution, the right of all sections of people will be protected," the CJI said in his first media meet after assuming charge.
 
"Our existence is itself based on tolerance," he said, wondering how some political people can twist it to their advantage.
 
Assuring that judiciary was there to protect and safeguard people's rights, he said: "We are capable of protecting the rights of all sections of the people. It is our responsibility. Rule of law and constitutional guarantees are enshrined (in the constitution).
 
"What to talk of citizens, rights of all the people will be protected. There is nothing to fear," he said, adding: "The rule of law is even for non-citizens."
 
So long as there was rule of law, constitutional guarantees and an independent judiciary, "tab tak kisi baat ka dar nahin hona chahiye (till then, one should not fear anything)".
 
Citing the long, rich and all-inclusive traditions of India, he said: "This country has been a home for all religions of the world. People who were persecuted in other places have come here and flourished."
 
Describing it as "our heritage", Chief Justice Thakur gave the example of Parsis who came from Iran, saying they gave India the best industrialists and "finest legal minds", in a reference to legal luminaries Nani Palkhiwala and Fali Nariman.
 
Expressing support for the traffic restriction move, he said he would not mind walking down to the Supreme Court from his Motilal Nehru Marg residence or even boarding a bus.
 
Supreme Court judges pooling cars would send the right message, he said.
 
"If a judge of Supreme Court can pool cars (with brother judges), it sends a message to the people that we have no problem," he said. "We can walk down or even take a bus."
 
Chief Minister Arvind Kejriwal hailed Chief Justice Thakur for his support.
 
"(His) support to odd-even formula is welcome and a huge encouragement," Kejriwal tweeted. "Supreme Court judges pooling cars would inspire millions to follow. Thank you My Lords."
 
CJI Thakur asserted that there would be no tolerance towards deviant behaviour and corruption by judges.
 
"We will be intolerant towards deviant behavior and allegations of corruption and cleanse the institution," he said.
 
On juvenile crime, he said that there was a bill before parliament and he was holding 14 cases to see what emerges. On the demand for abolition of death penalty, he said he was aware of the strong movement for this purpose but noted that for various reason, including terrorism, it was being retained in several countries, including some of the advanced ones.
 
"In India, the death penalty is awarded only in rarest of the rare cases."
 
Describing judges as a valuable "human resource", he said they could be used even after their retirement.
 
Addressing criticism that the judges were getting posts after retirement, he said: "If you think judges should not be there (on tribunals and commissions), you change the law and remove them from the system."
 
The chief justice also observed that the appointment of 400 judges to fill vacancies in the higher judiciary was a mammoth exercise and not an easy task to perform.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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