With an aim to facilitate new entrants to set up Market Infrastructure Institutions (MIIs) such as stock exchange and depositories and liberalize their ownership framework, market regulator Securities & Exchange Board of India (Sebi) has proposed new governance norms.
The regulator has released a discussion paper (DP) titled ‘Review of Ownership and Governance norms to facilitate new entrants to set up Stock Exchange / Depository’, highlighting the need for more competition among market infrastructure institutions, to improve overall efficiency and governance as well as to better adapt to new-age disruptive technologies.
“The Indian securities market has witnessed dominance in trading and depository space, raising concerns on possibility of excessive concentration and institutional tardiness in quickly responding to the changing market dynamics which may have an adverse bearing on efficiency in trading, record-keeping, supervision and risk management practices,” Sebi said.
As per the discussion paper, any resident individual or domestic institution owned and controlled by a resident can set up the MII and hold up to 100 percent shareholding. However, the promoter shareholding shall be brought down to either 51 percent or 26 percent in 10 years, suggested Sebi.
Earlier, the regulations did not allow individuals (resident or foreign), either directly or indirectly, either individually or together, to hold more than 5 percent in a stock exchange or a depository.
Further, a foreign promoter (from Financial Action Task Force (FATF) member jurisdictions) can hold up to 49 percent shareholding in MII, which shall be brought down to 26 percent or 15 percent in 10 years.
Foreign individuals or entities from other than FATF member jurisdictions, may acquire or hold up to 10 percent shareholding in a MII.
Sebi also suggested that at least 50 percent of ownership of the said MII, shall be represented by Individuals / Entities having experience of 5 years or more in areas of capital markets or technology related to financial services.
The discussion paper also proposed changes in the governance requirements of MIIs with diversification in the composition of statutory committees of MIIs, giving a wider representation of stakeholders.
SEBI has sought public comments on the proposals by February 5.
Analysts have welcomed the proposals saying that it will encourage competition in duopolistic markets by lowering the entry barriers.
ICICI Securities said that one dominant trend shaping the exchange and depository landscape was the emergence of new technologies such as distributed ledger technology, artificial intelligence, machine learning, etc.
It noted that several new fintech players had emerged in the trading space in various international jurisdictions, who were increasingly deploying the disruptive technologies and challenging the traditional functioning of stock exchanges and depositories.
“It is therefore necessary to forge a competitive landscape in the MII space by facilitating new players, who may challenge other MIIs in their already established domains, to set up MIIs, or merge with or acquire, the existing entities,” the brokerage house said.
Further, operationalization of the interoperability framework in the Indian securities market has resulted in the unbundling of clearing and trading functions, benefitting a potential new stock exchange by allowing it to use the services of existing clearing corporations.
Meanwhile, speaking to CNBC-TV18, Ravi Varanasi, Chief Business Development Officer at NSE said that the exchange was examining SEBI’s consultation paper.
(Edited by : Abhishek Jha)
First Published: Jan 8, 2021 6:19 PM IST
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