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The Securities and Exchange Board of India’s discussion paper proposing new and liberal ownership rules for stock exchanges, clearing corporations and depositories makes eminent sense. This will bring in greater competition in a sector where profit margins are, at present, liberal. The new rules abandon the fiction that unassociated individuals would suddenly be caught by the urge to form a stock exchange and serendipitously meet and jointly form an exchange in which each holds 5% stake at the most, or 15%, in the case of an institution. It allows resident promoters to hold 100% stake in stock exchanges to begin with, but have to bring the stake down t 51% or 26%, in 10 years.
Allowing new entrants to start with concentrated ownership — just as in private banks and insurance companies — and achieve distributed ownership (like in banks) over time would bring in fresh capital and technology in the sector and give promoters skin in the game It would drive mergers and acquisitions of existing entities and encourage fintechs to enter this space. More competition will lower costs, improve services for investors, foster innovation and help develop different segment. Four companies own and operate America’s 13 exchanges. With fintech players foraying into the space in mature markets, deploying blockchain technology to overhaul the trading processes and supervisory mechanisms, Sebi’s case to encourage these firms to set up market infrastructure institutions (MIIs) in India is valid. And easier entry norms will help.
Most jurisdictions see MIIs as commercial entities that have to be economically viable while in India these first-level regulators are seen as public utilities. Strengthening the governance of MIIs to ensure better supervision and accountability is a must.
Courtesy - The Economic Times.
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