A 2013 deal wherein India’s largest bourse National Stock Exchange (NSE) bought a 45 per cent stake in Computer Age Management Systems (CAMS), a mutual fund transfer agency, is now under investigation by SEBI.

NSE’s investment in an undisclosed wind power project is also under the regulator’s scanner.

These investments will be termed valid only if SEBI (Securities and Exchange Board of India) determines that the investment has been made in compliance with Stock Exchange and Clearing Corporation (SECC) regulations.

According to the draft offer document filed by the NSE ahead of its IPO (initial public offering), SEBI has made a preliminary observation that through these investments, NSE had engaged in activities not incidental to stock exchange activities, as prescribed under Regulation 41(3) of the SECC regulations.

The matter, though, is still under SEBI’s consideration and a final decision is yet to be taken.

The offer document stated that NSE could be subject to penalties, including instructions to divest all or a portion of its shareholding in such entities. “This, in turn, may adversely affect NSE’s business, financial condition and prospects,” the draft red herring prospectus said.

Interestingly, SEBI, in October 2010, had struck down a BSE proposal to acquire 51 per cent in CAMS.

At that time, SEBI was said to be against the deal as a stock exchange, the first level regulator, holding a majority stake in a market intermediary could give rise to a conflict of interest .

Power Exchange India

The NSE’s draft red herring prospectus further observed that one of its group entities, Power Exchange India Ltd (PXIL), had been recently advised by the bourse to consider closing down its business as early as possible and not later than February 28 this year.

This was due to the fact that PXIL had been incurring heavy cash losses in the preceding financial years and had a negative net worth, based on its last available audited financial statements.