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Saturday, Feb 18, 2006

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Guidelines on floating shares before budget

Special Correspondent

Demutualisation not a panacea for all ills, says SEBI chief

TAKING STOCK: M. Damodaran (left), Chairman, SEBI, and Anil K. Agarwal, President, Assocham, release the report on `Valuation and ownership of stock exchanges' in New Delhi on Friday. — Photo: PTI

NEW DELHI: The Securities and Exchange Board of India (SEBI) on Friday said that it would come out with guidelines on floating shares in listed companies before presentation of the budget.

Indicating this, SEBI chief M. Damodaran said at Associated Chambers of Commerce and Industry of India (Assocham) and Confederation of Indian Industry (CII) meetings that the regulator would come out with its report on various aspects of valuation and ownership of stock exchanges, including demutualisation, within six weeks.

A committee set up by SEBI was going into these aspects. SEBI had said earlier that each listed company would have to raise its floating shares to 25 per cent. But many companies had just ten per cent of their shares as floating as per the earlier requirements, Mr. Damodaran said, adding that they could not be asked to raise tradable shares to 25 per cent all of a sudden and the regulator would issue guidelines shortly and before the budget.

He said demututalisation, which separated ownership of stock exchanges from brokers, was not a panacea for all ills, as it had its own shortfalls. The role of stock exchanges as a first-level regulator came in conflict with bourses becoming profit-making entity, he said.

The SEBI chief said institutional investors, on behalf of those who have given them the power to be on the board, should not hang around when companies were not well run. They should exit in a publicised move so that the markets came to know, he added.

He said many companies might believe that their responsibility of practising corporate governance ended with the implementation of Clause 49 of the listing agreement, but the fact was that it was just a start.

`FDI in stock exchanges'

A strong demand was made on Friday for directives on foreign direct investment (FDI) into Indian stock exchanges, with a maximum of 49 per cent from entities related to the financial sector in order to strengthen the Indian capital market and to help stock exchanges build global alliances and brands.

"Though in India, stock exchanges are competing with each other, they are not able to compete with other exchanges on a global basis," said an Assocham prepared paper "Valuation and ownership of stock exchanges: Some perspective and international experiences for Indian stock exchanges". Released by Mr. Damodaran, the paper said "The Indian stock exchanges, through deployment of state-of-the-art technology and adoption of robust processes, have established efficient trading and clearing systems".

Need for alliances

Now alliances are necessary for the exchanges to continually restructure and upgrade themselves based on the latest technological advancements in trading and information dissemination technology, it said.

Assocham chief, Anil K. Agarwal, pointed out that recognising the changing needs of the exchanges, the SEBI had recently initiated a policy for simplifying the procedure for listed companies to tap the domestic market with follow-on equity offerings so that the regulatory arbitrage which currently drive the Global Depository Receipt (GDR)/ American Depository Receipt (ADR) markets was eliminated.

Since there is an opportunity for Indian exchanges to emerge as attractive listing/trading platforms for overseas companies, FDI in the Indian bourses is a step in that direction," he said.

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