06 October 2008

Investment in stock exchanges - limits enhanced

While the press has not yet reported on it, there is another big news from the SEBI Board meeting of today. See the SEBI Press Release (no direct link - click on the PR of 6th Oct). See my previous post on 6th Sept which in turn refers to my three previous blog posts on the issue. Again arguably a step in the right direction, but the quantum is inadequate from a governance of exchanges perspective. In fact I have argued on my 26th August post that a 15% limit is worse for investors than a 5% limit to the extent that they have no voice in the governance of the exchange but can lose 15% instead of 5% of the capital. I.e. the only reason a sophisticated financial institution would invest 15% in an Indian exchange would be a) it loves throwing away money without any control on how it is thrown away or b) in expectation that the limit will slowly be increased further by SEBI/Government.

There could of course be unhealthy pacts between the brokers collectively and the 15% investor allowing defacto control of the exchange to such investor - but that would militate against both the putative limit of 15% and the attempt to demutualise control out of the hands of the brokers.

See my posts of 9th August and 10th August also.

1 comment:

Nagappan, Chairman, Federation of Indian Stock Exchanges said...

In fact, a cap of atleast 26% would have been a step in the right direction. Hope we are moving towards that at the earliest.