Jalan committee - listing of exchanges

I have a 'face-off' column in the Economic Times about the Jalan Committee's recommendation prohibiting listing of stock exchanges. In fact the proposed ban is so absurd that both sides of the debate find it wrong. Here are my two bits:

"The first in-the-face argument for listing of exchanges is that they ought to eat what they peddle. It sounds hypocritical to tell the world the benefits of listing and at the same time say ‘we are different’. The benefits of listing are obvious. A listed exchange is subject to a high degree of transparency, disclosures and elevated corporate governance.

Shares of the exchange can be more appropriately valued and raising of capital both through an IPO and private placements becomes easier given valuation and an exit option being available to investors. Listing means serious outside capital inflows, which inject professional winds of change (think private equity).

The single-most important factor for recommending listing is that it makes management accountable to the shareholders. Today, that connection is wholly lost because of the ownership cap of 5% imposed by the regulator, ensuring that nobody has sufficient interest or clout to hold management accountable. It is not without reason that the strong exchange regulatory model which India follows, an IOSCO (an international association of securities regulators) report shows that all such exchanges are listed.

The committee suggests that “(exchanges) should not become a vehicle for attracting speculative investments. Any downward movement in its share prices may lead to a loss of credibility and this may be detrimental to the market as a whole.”

This is inexplicable logic. Are Infosys and Reliance ‘vehicles for attracting speculative investments’? How does an exchange become such a vehicle? Clearly, a listed company attracts all kinds of investors, short-term and long-term. Clearly also, listing adds stability to the pricing of a listed company.

For every so-called speculator, there are other speculators and investors taking the opposite view. Which is why the shares of Infosys typically follow a narrow band of price movement. Finally, the downward movement of prices does not result in loss of credibility; it is the loss of credibility that results in any downward movement of prices."