RBI approved foreign investment in stock exchanges, depositories and clearing corporations up to 49 per cent with FDI cap of 26 per cent and FII cap of 23 per cent.
Updated at 10.14 pm
MUMBAI: The Reserve Bank of India has notified that foreign investors can own up to 49% in stock exchanges, depositories and clearing corporations. Within this overall limit, foreign direct investment (FDI) will be capped at 26%, while foreign institutional investment (FII) will be capped at 23%. No single investor, though, can hold more than 5%, making it virtually impossible for foreign exchanges to take a strategic stake in Indian bourses.
While FDI will require prior approval from the Foreign Investment Promotion Board, FII money can come in through the secondary market. The question of FII investment does not immediately arise because none of the exchanges or depositories is a listed entity. “FIIs can invest only through secondary markets. Hence, no FII can pick up a stake in any of the stock exchanges until they are listed,” a senior official in the ministry of finance told DNA Money
The new norms do not also apply to commodity exchanges, for which separate proposals are being worked on.
Since the Securities & Exchange Board of India has capped investments by any single entity in stock exchanges at 5%, there is little chance of international exchanges taking a significant stake in Indian bourses. The Bombay Stock Exchange is understood to have held discussions with Nasdaq and the New York Stock Exchange for a possible stake sale, and the 5% limit is bound to be a deterrent.
Announcing the new rules, the Reserve Bank said on Friday: “It has been decided, in consultation with the government of India, to allow foreign investment in infrastructure companies in securities markets; namely stock exchanges, depositories and clearing corporations, in compliance with Sebi regulations.”
Sebi, in turn, has said that it is extending the 5% cap on investments by a single-entity in stock exchanges to foreign investors as well. A Sebi statement added: “FIIs shall not seek, and will not get, representation in the board of directors.” The market regulator said the RBI and it will separately issue necessary amendments to various guidelines in this regard.
The new rules will force the Bombay Stock Exchange (BSE), which is scurrying to meet the May, 2007, deadline for diluting its brokers’ stake, to change its plans. While the BSE’s managing director and CEO Rajnikant Patel was unavailable for comment, his counterpart in the National Stock Exchange (NSE), Ravi Narain, had this to say about the new policy: “It is more or less on expected lines and one part of it is fixed into the demutualisation process.” He added that equity tieups per se do not have any direct correlation with exchanges improving their technologies.
On whether the NSE would utilise this opportunity to rope in any foreign entity as an equity partner, he said: “There is nothing specific at the moment.”
According to a top official of a depository, the development would help Indian depositories and clearing houses to go global. “We are the cheapest depository and clearing house in the world. Once we have strategic overseas tieups, it is just a question of electronic connectivity and the world will outsource their work to us,” he said.
While the National Securities Depository Ltd (NSDL) has four foreign entities holding under 5% equity each, the Central Depository Services Ltd has the Indian arm of Standard Chartered Bank holding 7.17% in it. Deutsche Bank, HSBC and Citibank are shareholders of NSDL.
High fence
No single entity can own more than 5% in stock exchanges
FIIs cannot seek board seats on stock exchanges
Limits will apply to depositories & clearing houses
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