NEWS ANALYSIS: Stock market investors can look forward to yet another exchange to trade in soon. At the board meeting held on Monday, SEBI has paved the way for MCX-SX to get permission to start a platform for trading stocks.

High court ruling

SEBI had originally rejected MCX-SX application to start an equity platform. The Bombay High Court set aside this ruling and gave SEBI one month to look afresh at this application.

SEBI’s disagreement with the application was with relation to buyback arrangements entered into by the promoters and warrants given to the two main promoters, MCX and Financial Technologies, in lieu of shares.

SEBI also objected to the above mentioned shareholders jointly holding 10 per cent stake, that was greater than the 5 per cent stipulated under the manner of increasing and maintaining public shareholding (MIMPS) regulation.

Clearing the decks

All these issues have been addressed at SEBI’s board meeting on Monday. The regulator has now clarified that while the warrants issued to the two promoters were not unlawful, they shall be counted towards the promoters’ stake in the company as part of off-balance sheet exposure.

But the regulator has gone on to stipulate that any shareholder holding more than the stipulated limit will have to reduce the stake to “permissible limit within a period which may be extended up to three years from the date of getting approval from SEBI”.

In other words, SEBI’s stance that MCX-SX meet the MIMPS regulation before it gets approval for starting an equity platform seems to have changed. MCX-SX could now be given permission to start its equity trading platform. But the promoters could be told to reduce their stake from around 70 per cent (if the warrants are also included) to 5 per cent within three years.

Equitable view

Business Line has held the view that promoters of stock exchanges should also be given reasonable time to reduce their shareholding limit to stipulated levels. This would make stock market regulations similar to that of commodity market and banks.

Promoters can find buyers to divest their stakes only once the operations begin. To insist that shareholding be only 5 per cent prior to the equity platform getting operational was thwarting new entrants and stifling competition. By allowing promoters of new exchanges up to three years to reduce their stake, SEBI has taken an equitable decision.

(This article was published on April 3, 2012)
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