BSE had de facto SEBI nod to list in 2005

In a meeting in Delhi last week, members of the Bimal Jalan committee had refuted suggestions of a guarantee given to investors at the time of demutualisation that exchanges could list.

On Monday, in another round table discussion on the committee’s report organised by the Indian Merchant’s Chamber, a shareholder pointed out a specific clause in the gazette notification for the Bombay Stock Exchange’s demutualisation plan, which includes listing permission.

“Bombay Stock Exchange Ltd may at any time list its securities on any recognised stock exchange,” read out Bharat Banka, CEO of Aditya Birla Capital Advisors, which holds an undisclosed stake in the bourse.

The gazette notification was issued on May 20, 2005. The statement is a part of the scheme of demutualisation, which was approved by the Securities and Exchange Board of India (SEBI) and is available on the regulator’s website.

JN Gupta, executive director at SEBI and member of the Jalan Committee report, declined to comment when asked if the committee were aware of the notification.

Investors had been brought in by the BSE by telling them that the exchange would eventually be listed, according to sources.

Different entities have invested in excess of Rs 10,000 crore in various exchanges since then.

Exchange officials have protested that these investors have been shortchanged by the Jalan committee’s recommendation that exchanges should not be listed in the current environment. The report stated that there is a conflict of interest in the roles of the exchange as a regulator and as a commercial entity.

Sandeep Parekh, founder of Finsec Law Advisors, one of the members of the discussion and also a former executive director of SEBI said that regulator could end this conflict by taking over the regulatory function entirely. SEBI’s surveillance system is among the top three in the world, and sufficiently advanced to take over the regulatory function from exchanges, he said.

Gupta said SEBI is not adequately prepared to take on such a responsibility. The ‘amount of work’ that the regulator would have to take on would be too large and that adequate resources such as necessary staff are not available, he said.

Interestingly, the notification for demtualisation issued by the then SEBI chairman, M Damodaran, reserves the right to make changes if it feels the need to do so.

“SEBI reserves its rights to amend, alter or modify the Scheme in the interests of trade and public interest and in furtherance of the objectives of the corporatisation and demutualisation of the stock exchange,” it says.

Whether it chooses to do so would only be clear at the time of the next board meeting, when the board may review the recommendation of the committee and the feedback received on it.

Comments have been invited on the report till December 31.