Mandatory 25% to guarantee fund from profits may impact valuation

To list or not to list the equity bourses is a question that has confounded the policymakers and regulators of this country for many years now. Thankfully, India has made some headway on this front with the capital market regulator today clearly coming out in favour of listing of stock exchanges, but with safeguards.

Moot question

This would certainly cheer those investors who had pumped in hundreds of crores of rupees to own a piece of the stock exchanges. They could now get an exit route for their investments.

But the moot question is what impact the latest changes such as mandatory 25 per cent profit transfer to settlement guarantee fund and segregation of clearing function would have on valuation of these bourses.

But the bigger issue that remains unresolved by SEBI is the segregation of regulatory and commercial functions of stock exchanges. Even after the spate of policy measures announced on Monday, the surveillance function will remain with the exchanges.

There is still no roadmap for how and when the segregation would happen except an assurance from SEBI that “the long term goal would be to set up an independent SRO at an appropriate time in future”.

Missing mechanism

Independent governance mechanisms are clearly missing from the day's set of decisions. But the SEBI Board has come up with supportive mechanisms like independent committees to achieve the avowed objective of maintaining autonomy of regulatory departments in order to avoid conflicts of interest between the regulatory and business functions.

Although the independent committee will have majority of independent directors, how far this would succeed in the Indian milieu is some thing that only time can tell.

The concept of SEBI forming a conflict resolution committee should be welcomed.

The leading equity exchanges of this country have been pitching for segregation of regulatory and business functions before listing is allowed. The Jalan committee, which had a different view, said that stock exchanges are public utilities and that regulatory and commercial functions should not be segregated. SEBI, it appears, has a mind of its own and settled for different governance structure altogether.

The SEBI Board has also brought some radical changes to the compensation structure, especially that of key management personnel in stock exchanges. ESOPs and other equity linked options are ruled out for the key management personnel, whose remuneration will now be approved by SEBI. The variable pay component will not exceed one-third of total pay.

>krsrivats@thehindu.co.in

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