The capital market is privileged to have as distinguished a person as Dr Bimal Jalan to chair the Committee on Review of Ownership and Governance of Market Infrastructure Institutions (MII). The Committee has set out eminently suitable measures for the reform of MIIs.

The furore is understandable as the recommendations of the Committee put paid to the aspirations of certain segments which equate extremes of deregulation with maximum efficiency. We need to learn the lessons of the recent international financial crisis.

Stock exchanges have a dual role of being frontline regulators with commercial interests. Those opposed to the recommendations of the Jalan Committee, relating to ownership, governance, conflict resolution and listing of stock exchanges, have expressed disagreements without showing due respect. It is time that advocates of efficiency of financial operations set out alternative views with dignity.


In India, the stock exchanges are regulators, and profit maximisation is not the only objective. If the shareholders are not to be profit-maximisers why would they be owners? It is here that large institutions are expected to set apart a very small part of their resources for the public good. The Committee has prescribed that institutions with a minimum of Rs 1,000 crore should be made Anchor Institutional Investors (AIIs). Such AIIs are permitted to hold 24 per cent of the shares in stock exchanges, to be brought down to 15 per cent in 10 years. It is not expected that these institutions would be Good Samaritans who would give up their share without any reward. The investor can legitimately expect a return of say 18-20 per cent on the original subscription, and not on the present net worth of the stock exchange. Thus, a prerequisite for taking a stake in a stock exchange should be that the investment is undertaken with the public good in mind, and not profit maximisation.


An investor holding, say, a 5 per cent stake may claim to have a divine right to be a profit maximiser; in fact, this is the case for listing the shares. In the context of a public good, such an approach just cannot be countenanced. At the same time it is only appropriate that a small investor should be provided an exit route with fair and well established parameters.

It can be argued that stock exchanges are listed companies in Ruritania, Mancunia and Transylvania and, therefore, we should do the same. In countries where stock exchanges are listed, they are stripped of their regulatory function. If the regulatory functions were taken over by SEBI, there would be a hue and cry that the regulators are concentrating too much power in themselves.

Dr Jalan, as a true pragmatist, has said, with great magnanimity, that listing could be considered after sufficient safeguards are in place. The regulators would be well advised to ignore the market din and accept Dr Jalan's sagacious report. They should not undertake wild and irresponsible changes. No person is better qualified than Dr Jalan to comprehend what the public good really means. As he would often explain to officials in the government, running a country is far more complex than running a single corporate. SEBI would be well advised to recall the historical background.

In the late 1980s, the Bombay Stock Exchange (BSE) fought a pitched battle with the Ministry of Finance and the Reserve Bank of India (RBI) on the issue of allowing institutional brokers in the stock exchange. Eminent jurists, chartered accountants and lawyers were marshalled by the BSE to argue against the entry of institutional brokers. It took the authorities considerable time and effort to ensure that institutional brokers were admitted into the BSE.

Again, when SEBI was set up, brokers resisted the payment of fees to the regulator and at one time the authorities were seriously considering a proposal to bring SEBI into the RBI fold. Those opposed to the SEBI proposal felt that it would be discreet to back off!


In the present instance, it is best that decisions not be taken in the heat of pitched battles. The most insidious argument for fostering animal spirits of avarice is to put them in the garb of market efficiency and avoidance of monopolistic operations.

As the doyen of capital market development in India, Dr R. H. Patil, has pronounced, as a matter of principle, any entity with an embedded regulatory role in its functioning should never be listed. The absurdity of the whole debate would be brought upfront if one were to argue for listing of SEBI and the RBI! SEBI would be well advised to view these issues from its vantage point and not cave in to vested interests.

(The author is a Mumbai-based economist. )