Sebi suggests easing of ownership norms for exchanges, depositories

According to the new proposals, resident promoters or a foreign promoter from a FATF jurisdiction can set up a market infrastructure institution.

The markets regulator on Wednesday proposed easing of ownership and governance norms for stock exchanges and depositories.

According to the new proposals, resident promoters or a foreign promoter from a FATF (Financial Action Task Force) jurisdiction can set up a market infrastructure institution (MII).

The domestic entity can hold 100 per cent in the MII, which should be brought down to 51 per cent or 26 per cent in 10 years.

The foreign promoter can hold up to 49 per cent, which should be brought down to 26 per cent or 15 per cent in 10 years.

Those from non-FATF jurisdictions may acquire or hold up to 10 per cent in an MII.

Any person (domestic or foreign), other than the promoter, may acquire or hold less than 25 per cent shareholding.

At least 50 per cent of ownership of the said MII shall be restricted to entities or individuals with over five-year experience in areas of capital markets or technology related to financial services.

In a note on Wednesday, the Securities and Exchange Board of India (Sebi) said the entry of new technologies, such as artificial intelligence and machine learning, as well as the emergence of new fintech and techfin players have potential to disrupt the MII space.

“The extant framework appears to inhibit entry of new players or acquisition of existing entities due to a default precondition of dispersed shareholding at the initial stage itself, which limits the upside gains for a potential entrant arising out of entrepreneurial capital.

"It is, therefore, proposed to create a liberalised ownership framework by allowing higher shareholding at the initial/inception stage with dilution over a period of time,” said Sebi.

For existing MIIs, a person may, directly or indirectly, either individually or together with persons acting in concert, may acquire or hold up to 100 per cent shareholding in an MII, which shall be brought down to not more than 51 per cent or 26 per cent in 10 years.

Any acquisition of 25 per cent or more shall be subject to Sebi’s approval.

FATF promoters may hold up to 49 per cent, which should be brought down to not more than 26 per cent or 15 per cent in 10 years.

Foreign individuals and entities from non-FATF jurisdictions, may acquire or hold up to 10 per cent in an MII.

“The proposals, if implemented should lead to more competition in the MII space, reduce the entry barriers, particularly for foreign players, and allow more room for fintech players to set up shop,” said Tejesh Chitlangi, senior partner, IC Universal Legal.

At present, individuals, either directly or indirectly, cannot hold more than 5 per cent in a stock exchange or a depository.

The NSE and the BSE dominate the stock exchange landscape in India, with the former holding more than 90 per cent share in the equity derivatives segment and holding a dominant position in the cash equity segment as well.

NSDL and CDSL are the two national players that provide depository services.

Photograph: Shailesh Andrade/Reuters