Learning from the recent financial crisis, a Sebi committee, which was set up to look into different aspects of stock exchanges and related intermediaries like depositories and clearing corporations, has suggested a substantial increase in the net worth requirement for such entities.
The committee, headed by former RBI governor Bimal Jalan, recommended that all stock exchanges should have a net worth of Rs 100 crore at all times. The committee also recommended that the net worth for each clearing corporation may be fixed at Rs 300 crore. The committee members were also not in favour of exchanges being listed. It also said that the top bosses of stock exchanges should not get any variable pay or stock options.
The committee also brought in the concept of anchor investors in the stock market space. It proposed that banks and financial institutions with a net worth of more than Rs 1,000 crore may qualify as an anchor investors for a stock exchange and hold up to 24% stake, up from 15% now, for a maximum of 10 years.
Qualified institutions currently holding stakes in stock exchanges can convert to anchor investor by applying to the market regulator, the committee suggested. But it has proposed to cap the aggregate anchor investor holding in stock exchanges at 51%.
The committee has also suggested that clearing corporations and depositories may not be allowed to invest in stock exchanges, while at least 51% in a clearing corporation should be held by a stock exchange.
At present, brokers are allowed to be directors on stock exchanges. But the Jalan Committee has recommended that no trading and clearing member, even if associated with a different exchange, should be allowed on the board of any stock exchange and “the number of public interest directors (independent directors) on the board shall at least be equal to the number of shareholder directors without trading or clearing interest”. This has been done to address the issue of conflict of interest. It also suggested that the chairperson of a stock exchanges should be appointed with the prior approval of Sebi and should not be paid a commission or remuneration.
However, since trading members bring in rich practical experience, which should be used in a manner that doesn’t conflict with governance, an advisory committee comprising trading members should be constituted by the board of the stock exchange, the committee said.
The committee said that the existing procedure for the appointment of MD/CEO of a stock exchange should continue and be extended to the appointment of MD/CEO of clearing corporations and depositories. It also suggested that the CEO should be appointed for a reasonable tenure, say about 3-5 years. The panel also said that there should be a cap on the extent of profit stock exchanges can make and recommended that such a cap may be linked to yields on 10-year government bonds and formulated by Sebi.