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Demutualisation may see FIs as stock exchange promoters

Kausik Datta & Aniek Paul

Domestic financial institutions are likely to acquire control of the country's stock exchanges post-demutualisation, as the government intends to follow the National Stock Exchange model in the corporatisation of the bourses.

Planning Commission member Montek Singh Ahluwalia said, "The government intends to outline a blue print for demutualisation of the stock exchanges in line with the NSE which is promoted by the FIs."

The point of demutualisation, he said, was to take away the management control from the members, and ensure that the bourses are professionally managed trading platforms. This would also ensure that the government would have greater control on the administration of the country's capital market.

The Securities and Exchange Board of India chairman D R Mehta concurred with the observations of Ahluwalia. Mehta said: "It has already been decided that the brokers would be barred from the administration of the exchanges, and the regulatory authorities would exercise greater control on the management of the bourses."

Mehta said the ministry of finance and Sebi were preparing the blueprint for the corporatisation of the bourses. The government has set a deadline of July 2 for the corporatisation and implementation of rolling settlement, for which various models are being considered.

Mehta also indicated the possibility of a number of laws being amended to give effect to the changes being considered by the ministry and the market regulator. Though this would have normally taken a long time, following the crisis, it is understood that the government would push through the amendments by the July 2 deadline it has imposed.

Stock exchange sources familiar with the developments said, it is not quite clear whether FIs would come forward to acquire control of all the bourses, or the exchanges would have to scout for support on their own.

On the issue of the possibly resistance to the move from the brokers who are currently the shareholders of the exchanges, sources said: "The stock exchanges of the country do not distribute profits by way of dividends, and hence the loss of ownership of the assets of the exchange is only a notional loss."

This would also mark the beginning of consolidation in the stock exchanges, sources said. FIs infusing funds into the capital markets would certainly demand a return on their investments, and their interest in profit making bourses would certainly be higher. "This would, in turn, force the weaker bourses to grow through mergers, setting the ball of consolidation rolling," sources said.

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