Sebi: In bourses, let PSBs be 'public' shareholders

Capital markets regulator Sebi has suggested that banks and financial institutions from public sector be considered as ‘public shareholders’ in stock exchanges, but the view has been rejected by Finance Ministry.

The issue is likely to be discussed on Thursday at Sebi board meeting, which would be apprised of the impact of the Finance Ministry’s decision for not agreeing to the suggestion, sources said.If the current stalemate continues,  MCX-SX, United Stock Exchange and BSE would have to increase their public shareholding by 25.66 per cent, 1.72 per cent and 0.845 per cent respectively by April 2015.

At NSE, the public shareholding is at 57.48 per cent, which is well above the required level of 51 per cent.

The market regulator is of the view that any restrictions on shareholding of banks and financial institutions by allowing them to hold shares in stock exchanges only as ‘public shareholders’ would hamper their participation in the development of the stock market.

However, Finance Ministry has rejected any relaxation in the public shareholding norms for stock exchanges, saying it would violate the statutory provisions of relevant Acts, sources said.The Securities Contracts Regulation Act (SCRA) provides for at least 51 per cent stake in a stock exchange to be held by public shareholders, which can not include those having trading rights on the bourse.

Earlier, banks were allowed to be classified as ‘public shareholders’, provided they do not become trading members in the stock exchanges.

However, after introduction of currency derivatives segment, it came to light that trading members would necessarily have to be banks and therefore the rules do not allow them to be included in public category.

Subsequently, the matter was discussed by Sebi board and was taken up with the Reserve Bank of India and the Finance Ministry.

As an interim measure, Sebi had decided in April 2012 that the existing position would continue for a period of three years or till the time necessary amendments are made. However, the Finance Ministry has now opined that inclusion of shareholders with trading rights in the ‘public’ category would violate statutory provisions of relevant norms.