National Stock Exchange okay with cross-listing

The National Stock Exchange (NSE) is okay with listing on rival BSE if the exchange is required to make all mandatory information disclosures directly to the Securities and Exchange Board of India (SEBI) or another body.

“We can be listed anywhere, but disclosure of information should happen to the regulator or any other neutral body,” people close to the NSE told Business Standard. NSE has been unequivocal in its insistence on self-listing despite the disallowance of such an arrangement under existing SEBI norms. Rival BSE has, however, publicly stated that it is okay with cross-listing and has “no objection in providing compliance-related details on a timely basis to the NSE”.

“Any entity or stock exchange will be comfortable if they are regulated or supervised by a competent regulatory authority rather than by another entity or exchange. The same logic holds true for NSE,” the sources said, adding that the lack of liquidity and competition are major concerns with regard to cross-listing.

SEBI had issued a notification last month amending the Stock Exchanges and Clearing Corporations regulations, which made it easier for exchanges to list, but did not allow them to opt for self-listing.

“A recognised stock exchange may apply for listing of its securities on any recognised stock exchange, other than itself and its associated stock exchange,” said the amended regulations. But NSE says while it would abide by SEBI instructions, there may be a case for relooking at things in the changed circumstances.

“Some people are even advocating dual listing. The market can get fragmented in case of dual listing and liquidity will get impacted as dual trading can divide the investors,” said people close to the exchange. “The majority of stakeholders, being long-term investors, are aware of NSE’s significance and potential.”

NSE sources said post listing any entity becomes profit seeking in nature as expectation will be to seek return on their investment and hence, the exchange has sought in principle approval from SEBI to separate its profit seeking role from the regulatory role through restructuring the organisation.

NSE has been insisting that self-listing is a common practice overseas and that there are arrangements that provide for fresh demarcation of regulatory functions between regulators and self-listed exchanges internationally. “If you look at the global benchmarks, virtually every exchange that has gone down the path of listing has chosen self-listing. Therefore, to go ahead and not list on the NSE is not a good solution,” Ravi Narain, vice-chairman of NSE, had told the Business Standard recently.

For instance, to ensure the integrity of trading in its securities, the ASX entered into a Memorandum of Understanding with the Australian regulator, Australian Securities and Investment Commission (ASIC), whereby the latter monitors and supervises ASX's compliance as a listed entity and exercises all powers regarding the admission or removal of

ASX from the official list, and the granting, stopping or suspending of the quotation of ASX’s securities, in a manner similar to what ASX would do in respect of other listed entities.

The Singapore and the Hong Kong stock exchanges, for their part, have also constituted conflict committees to deal with the conflicts of interest arising from the exchange’s regulatory, risk management and commercial functions.

“Like in the case of the Singapore and Hong Kong exchanges, the issues arising from listing conflicts can be entrusted to a third entity, not necessarily the market regulator, which is vested with the responsibility to closely examine their activities as a listed entity and rule out the chances of abuse in conflict of interest situations,” the sources said.

The Hong Kong Stock Exchange spun off its regulatory arm with demutualisation and the New York Stock Exchange had taken steps in that direction as part of its corporate governance overhaul, and again announced that it would further separate its regulatory arm as part of the merger of Archipelago and the subsequent going public.

The separation mitigates all incentives and conflicts that are related to the regulatory intensity in general, the regulation of stockholders, of competitors, of oneself, and of affiliates and also precludes possible hidden cross subsidisation, etc, the NSE sources said.