Mumbai, March 11, 2018

Regulator-set panel may move to loosen stock exchanges’ grip on clearing houses

In a bid to end the dominance of the two central demat service providers, NSDL and CDSL, a SEBI appointed panel is likely to propose allowing corporate houses or private companies to get into the segment.

The panel, headed by former RBI Deputy Governor R Gandhi, may also suggest easing the grip of stock exchanges on clearing corporations (CC). The panel was set up by SEBI in 2017 to review the norms for market infrastructure institutions.

An anchor investor or a promoter should be allowed to hold as low as 15 per cent in a depository and the stake of National Stock Exchange and the BSE, in their respective CCs, should come down to 51 per cent from current 100 per cent, the panel is likely to tell SEBI.

Both these measures could curtail the influence of few banks and stock exchanges and encourage competition in an otherwise highly regulated environment, experts said.

NSE is one of the key promoters of NSDL and BSE, of CDSL. The CCs promoted by these exchanges do not extend their service to others, thereby, restricting the entry of new exchanges. When MCX-SX started its equity operations, the BSE and NSE did not allow their CCs to cater to it.

Although the Gandhi panel seems in favour of interoperability between CCs, it may stop short of giving an extensive view on it as another SEBI panel was dealing with the subject.

The few banks that are among promoters of NSDL and CDSL are also the key promoters of stock exchanges, making them highly influential entities in India’s financial sector. The committee feels there is a need to bring harmony among various key market infrastructure institutions in India and put curbs on monopolies.

The panel will submit its report of recommendations to SEBI by the end of this month, sources told BusinessLine.

A depository handles paper assets in electronic form and CCs oversee risk management and trade settlement in the equity and commodity segments.

The panel could also recommend cutting down the number of committees appointed by the BSE and the NSE for various work. Each exchange has 16-17 different committees, which should come down to seven, the panel may recommend.

On the issue of how exchanges and depositories had got into businesses that were outside the purview of SEBI, the panel may leave it to the regulator to allow or disallow it. The norms regarding shareholding pattern of stock exchanges may also be left unchanged.

It is the second time since 2010 that SEBI has set up a panel to suggest a way forward for working of key market infrastructure institutions.

The Bimal Jalan committee in 2010 came under a cloud of controversy for recommending 5 per cent cap on individual shareholding of stock exchanges and 15 per cent for foreign institutional investors.

An important mandate for the current panel is to bring down the risk of monopolies.

[The Hindu Business Line]