Foreign exchanges’ higher holdings to benefit BSE, NSE

he government’s decision to allow foreign exchanges to hold up to 15 per cent stake in Indian bourses has come as a shot in the arm for entities like the BSE and the National Stock Exchange (NSE) that are planning to become listed entities.

“Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 per cent to 15 per cent on a par with domestic institutions. This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices,” according to the Budget presented in Parliament on February 29.

The current regulations allowed only a few categories of entities such as insurance companies, domestic exchanges, depository, clearing corporation and banks to hold up to 15 per cent in an Indian stock exchange.

The government decision has come at a time when both the exchanges have publicly expressed their desire to get listed themselves. While BSE has already filed its draft document with the Securities and Exchange Board of India, NSE recently formed a Listing Committee to “to accelerate the process of listing.”

“This was a long standing demand of exchanges. It was felt that 5% cap is too small to attract global exchanges to take stake in Indian bourses. They would come only if offered a significant minority stake. We can leverage their technology and reach to market our products as well,” says a former senior official of an exchange.

With the cap increased from five per cent to 15 per cent, global exchanges will be able to subscribe to a larger portion of shares during the public offering. The overall cap of foreign holding in an exchange has been kept unchanged at 49 per cent.

Quite expectedly, both the leading exchanges have welcomed the government decision that allows global majors like Singapore Stock Exchange, NASDAQ, Deutsche Borse or New York Stock Exchange (NYSE) to increase their footprint in India.

“This is expected to improve the functioning of Indian stock exchanges and bring them on par with the best exchanges in the world. This will also help attract more investments in India by creating stronger links with the best foreign exchanges,” said a BSE spokesperson.

Both, Deutsche Borse and Singapore Stock Exchange hold 4.91 per cent each in BSE, as per the annual report of the exchange for the year 2014-15.

A spokesperson for NSE said that the exchange has always aligned with the government’s policy decisions and will address the issue whenever it receives proposal for incremental shareholding.

The current Sebi norms do not allow an exchange to list on its own platform – called self-listing in market parlance – but is free to list on any other exchange. While BSE has said that it has no issues with listing on NSE, the latter has said that it prefers self-listing.

A recent statement from NSE stated that it is the exchange’s “principled stand that an exchange should continue to be regulated by an appropriate regulator only and not by competitors.”

Incidentally, the mandate of NSE’s listing committee includes interacting with the shareholders and engaging “constructively to proceed on the restructuring exercise simultaneously with self-listing agenda.”