Sebi may consider exchanges’ foray into unrelated businesses

Sebi may consider exchanges’ foray into unrelated businesses

A Securities and Exchange Board of India (Sebi) panel headed by R Gandhi, former deputy governor of the Reserve Bank of India, will consider allowing Indian stock exchanges to enter into unrelated businesses, said two persons close to the development. At present, stock exchanges are allowed to provide only trading platform and promote clearing corporation and depositories.

“Exchanges want more sources of income. Now, their revenue is from regulatory function such as listing fees etc.,” said one of the persons mentioned above.“Stock exchanges won’t be able to attract investments from investors if it’s not into other businesses. So, they want to carry out unrelated activity through subsidiaries.”

On October 16, Sebi constituted a committee under Gandhi to review the norms for market infrastructure institutions such as stock exchanges, depositories and clearing corporations.Stock exchanges recently met the panel and sought for change in rules, the two persons said.

Exchanges need Sebi permission to venture into businesses outside its core activity. In the past, when exchanges wanted to do registrar business, they were not allowed.

Globally, exchanges are allowed to venture into new businesses and are not so tightly regulated like in India. They are regulated only for the purpose of the trading platform, while Chinese walls are maintained between other businesses.

“Globally, exchanges store data and disseminate them for research and commercial activity for a fee,” said the second person quoted above.

Sandeep Parekh, founder of Finsec Law Advisors, said: “So long as the other businesses don’t pollute the main exchange activity, it should be fine. Similar principles may not be applied to clearing corporations as it is more sensitive.”

The slew of recommendations by the Bimal Jalan committee on stock exchange reforms in 2012 had asked the regulator to conduct a review of the rules for bourses every five years.

“It’s a totally unexplored area,” said a senior regulatory official familiar with the development. This request was made to the Bimal Jalan committee but then they felt it had to be considered in due time, he said.

A top exchange official said it needed clarity on the definition of what is related and unrelated business. Market participants said exchanges could propose venturing into data analytics business though their usage should be allowed only in select fields.

“Data analytics if it is only for the purpose of securities market should be allowed. But, it should not be sold to consumer companies,” said JN Gupta, a former Sebi executive director and a member of the Jalan committee.

“Exchanges are getting data because of law. It is a regulatory requirement hence it shouldn’t be allowed to be used by them for their commercial purpose or any other purpose unless approval is obtained from

The Economic Times, New Delhi, 4th December 2017