Zee Business Exclusive: Finance Ministry, MCA are not convinced with Sebi proposal of reviewing MIIs' shareholding

(Reported by Tarun Sharma)

The Securities and Exchange Board of India’s plan of reviewing shareholding structure of market infrastructure institution may go on back burner. Finance Ministry and Ministry of Corporate Affairs representatives on Sebi’s proposal have disagreements on discussion paper of reviewing shareholding structure of MIIs. MIIs are Market Infrastructure Institutions and include mainly Exchanges, Depositories and Clearing Corporations.

Finance Ministry and Ministry of Corporate Affairs (MCA) have raised concern on higher shareholding for single entity to 100 percent. A source close to development told Zee Business that “Sebi is ready to cut down the shareholding proposal from 100 percent  to 51 percent to a single entity”.

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Another source told Zee Business “Finance Ministry and MCA have raised concern of possible misuse by entities which will have majority shareholding in exchange business”. 

Source further added that concerns are unfounded because it will continue to ensure strict compliance. Source added that “ Currently Sebi appoints public interest directors on exchanges board and in the board meet, Sebi proposed that besides PIDs it will also control the appointment of chief financial officer and chief regulatory officer, so that risk of any fraudulent activity or misuse by company due to its shareholding is curtailed. Along with this, if the owner is a listed company then it will automatically come under Sebi’s regulation.  

Anil Choudhary, Partner, Finsec Law Advisors told Zee Business “ FinMin may be concerned about potential delays in bringing down the shareholding of the promoting entity from such MIIs. RBI has faced this issue with some banks and concern of the government may be coming from their past experience with private banks. However this move by SEBI has its advantages as it would permit competition in the field of MIIs and would counterbalance risks of monopoly of few institutions in the stock market infrastructure of India”.  

However, to let the idea sail through, Finance ministry and MCA proposed inter-ministerial group for further discussion.  

Utkarsh Sinha managing director Bexley advisors, a boutique investment bank firm told Zee Business “SEBI has a delicate balancing act, where it must chose between equity and accountability that a dispersed shareholding pattern promise, and scale and size, which large equity holdings encourage”.  

Sebi has issued discussion paper in January about reviewing shareholding structure of Market Infrastructure Institutions. In this discussion paper, Sebi proposed 100 percent shareholding for single entity for starting new exchange. Sebi has proposed ten years time period for reducing stake from 100 percent to 51 percent or 26 percent. Similarly for foreign institution shareholding can be increased up to 49 percent and in ten years of time period will have to come down from 26 percent or 15 percent.  

Existing framework caps the ownership of MIIs at a lower shareholding limit (not  more  than  5%)  for  individuals  (domestic  or foreign)  and  institutions (domestic or foreign) in general and permits only up to 15% ownership stake by select category of institutions (domestic or foreign). The idea of Sebi was to ease set up of exchanges, depositories and clearing corporations. So that more tech companies with new ideas can set up exchanges and increase the competition.   

In this discussion paper, Sebi proposed changes in tenure of MD & CEO of a MII can be appointed for maximum two terms of up to 5 years each, with an age limit of 65 years. It is proposed that the appointment of MD & CEO of the MII shall be for maximum three terms of three years each, subject  to age  limit  of  65  years.   

E-mail sent to Sebi on for the response did not elicit any response.

(Reported by: Tarun Sharma)