RINGSIDE VIEW. SEBI could consider allowing bourses to trade in their own stocks ...

So, the BSE is set to launch its initial public offering on January 23 in a price band of ₹805-806. Through the offer, 262 of the BSE’s existing shareholders will offload about 1.54 crore shares to raise around ₹1,200 crore.

The stock will be listed only on the NSE, since self-listing is not permitted.

One of the main objections SEBI cites on self-listing is conflict of interest.

“Stock exchanges in India and many other countries have multiple functions. One key function is to be the regulator for all brokers; and an exchange is the first-line regulator for them. They are also a regulator for listed companies. If you are a for-profit company and if you are expected to take action against those entities from whom you get your revenue, there is a very likely conflict of interest,” SEBI chief had said earlier.

Despite the Bimal Jalan Committee opposing the idea of stock exchanges being allowed to go public, SEBI permitted bourses to list. However, SEBI chief UK Sinha had then said that since listing of stock exchanges is a global practice, India too should permit it. However, India need to put in place safeguards — “that is, no self-listing,” he explained.

Now, after allowing the exchanges to cross-list, SEBI can very well consider allowing the bourses to trade on themselves. While listing itself could be done on the other exchange, shares of the exchange could be traded on its own platform too, in the ‘permitted securities’ category, if not for dual listing. Stock exchanges currently trade some stocks listed on other exchanges under this category.

With rival stock exchanges playing the role of primary regulator, there would be no ground to fear first-line regulatory role being compromised.

As suggested by its study ‘Models for self-listing and conflict resolution mechanism’, SEBI could ask the bourses to incorporate a wholly owned subsidiary, which could be entrusted with the role of monitoring the conduct of market users and their compliance with the exchange’s operating rules, and ensuring that sufficient resources are allocated to it to perform its supervisory functions.

The market regulator can also ask the bourses to set up a high-level committee consisting of legal luminaries and eminent chartered accountants for periodical and routine audits, and thus avoid mis-steps.

SEBI can also put in place its own unit to look into the functions of exchanges. This will help it monitor the exchanges directly and step in at the time of conflict.

If dual listing is allowed, exchanges will behave in a more responsible manner. And more importantly from traders’ point of view, dual listing will enhance liquidity in the stock.

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