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Sebi, ministry at odds over corporatisation

Subhomoy Bhattacharjee in New Delhi

The Securities and Exchange Board of India has asked for an amendment to the Securities Contracts Regulation Act to corporatise bourses, but the finance ministry feels there is no need to amend the Act.

The Sebi board has decided to recommend an amendment to the act at its meeting on Friday. The Sebi position is based on the recommendations of Justice Kania committee which has said that clause (j) of section 2 of the SCRA, 1956, would need to be amended for switching a stock exchange to a corporate body.

But the finance ministry is sticking to its stand that such an amendment would mean pushing the time-table for demutualisation or corporatisation of the exchanges away into the future.

They have argued that such an amendment would imply a cabinet nod for which the note would have to shuttle between finance, law and other concerned ministries before the same could be finalised.

In spite of the importance attached to the Sebi Bill, for instance it has taken almost two years to get the bill through the parliament. Demutualisation is the separation of ownership, trading and management in a stock exchange.

After the stock scam of 2001, the then finance minister Yashwant Sinha had promised to both enhance the powers of Sebi and demutualise the exchanges.

The finance ministry position is also based on the advice tendered by the law ministry. The latter has informed the ministry when the issue was referred to it that there was no need to amend the act and a simple change in the rules of SCRA would do. Consequently the matter may have to be referred to the Attorney General for a final decision.

The ministry has also cited the creation of the National Stock Exchange as a model that did not require any amendment of SCRA. The other issue that would have to be resolved between the North Block and Sebi is the issue of separation of brokers from management of the exchanges.

But the Sebi board has decided that exchanges can opt for equal board representation of brokers, shareholders and investor representatives under one of the models approved by it. This is as per the recommendations of the Kania committee.

Sebi has also decided that while splitting trading and ownership rights in bourses, members would be entitled to shares in exchange for their rights.

But whether the shares would translate into voting rights would be decided by it in consultation with the central government.

The ministry's position is that to recover the confidence of the public, there should be no broker-directors on the board of the corporatised exchanges.

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