Friday, Jul 11, 2003
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By Our Special Correspondent
Based on a Union Cabinet approval granted today, the decision to amend the two legislations would amount to corporatisation and demutualisation of stock exchanges. The demutualisation would mean a transition from a mutual association of member brokers operating on a "not for profit'' basis to a company with limited liability operating on a "for profit'' basis and which would be accountable to shareholders. In other words, demutalisation would separate ownership and voting rights and management from the right of access to trading. At present there are 23 stock exchanges operating in the country. Of these, 20 stock exchanges have been set up as companies either limited by guarantee or by shares and only three stock exchanges — Bombay Stock Exchange, Ahmedabad Stock Exchange and Indore Stock Exchange — are functioning as association of persons. All these exchanges are non-profit making organisations, except for the National Stock Exchange (NSE), which is a profit making organisation. Also, the NSE and the Over-the-counter Exchange of India (OTCEI) have a demutualised structure. The corporatised and demutualised status of the stock exchanges would also facilitate streamlining of business operations consistent with market needs, streamlined decision making by a professional management and capacity to raise capital, which could be used to improve technology and acquisition of other markets. The decision to amend SCRA and the Depository Act is based on the recommendations of the Joint Parliamentary Committee that looked into the stock market scam of 2001 and also on the basis of the Kania Committee report commissioned by the Securities and Exchange Board of India. Apart from transforming the stock exchanges to corporatised-demutualised bodies, the amendments to SCRA would facilitate transactions in new financial instruments such as units and derivatives.
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