Bourses may appeal Sebi fiat on profits

Stock exchanges are expected to appeal to the Securities and Exchange Board of India (Sebi) on its decision to have them transfer part of their profits to a fund for guaranteeing settlement of trades, according to a brokerage report based on conversations with exchange officials.

“Our interactions suggest that exchanges may look at requesting Sebi to reconsider this proposal… given the strength of the existing SGF (settlement guarantee funds), there could be some potential relief,” said the report, which is not in the public domain yet.

Officials of two exchanges denied knowledge of any plan to appeal the Sebi decision, while the spokesperson of another declined to comment.

However, people familiar with the matter said the exchanges plan to ask Sebi to reconsider its decision.

The new regulations were announced after a meeting of the Sebi board on April 2 and are yet to be notified to exchanges.

Exchanges hope to convince the regulator to tweak the rules before they are notified, said the people.

“There are a number of issues which the current decisions have thrown up. Until the notification comes, it is not a sealed and done case,” said one exchange official.

The transfer of profits into  SGF would be in addition to the current practice of the exchanges sharing 15% of their transaction fees with clearing corporations as charges for clearing and settlement.

The SGF fund is a part of the clearing corporation, which guarantees all the trades taking place on the exchange.

The regulator has also asked exchanges to bring down their stake in clearing corporations from 100% to 51%.

The shift of profits to an entity in which their stake would be cut in half would significantly impact exchange profitability, say industry experts.

Exchanges currently use their undistributed profits for investment in treasury operations. The returns from these operations form around 40% of their total income.

The BSE has a settlement guarantee fund in excess of Rs5,000 crore, while the National Stock Exchange has one in excess of Rs30,000 crore.