SEBI Proposes Expanding Ownership Of Clearing Corporations To Reduce Market Pressure

Markets regulator SEBI on Friday proposed diversifying and widening the ownership of the clearing corporations, which are at present wholly owned subsidiaries of stock exchanges. SEBI rules prohibit clearing corporations from listing publicly but allow stock exchanges (their parent entities) to list, indirectly exposing CCs to market pressures.

"While looking to broad base and diversify the ownership of CCs, it is important to ensure that such a transition is fair to all stakeholders (including to the current shareholders of the parent exchange) and causes minimal disruption to the capital markets ecosystem," SEBI said in its consultation paper.

Considering this, one approach could be a pro-rata distribution of 49% of shareholding of a CC to the existing shareholders of the parent exchange and the balance 51% of shareholding would remain with the parent exchange to start with.

The parent exchange could then be given 5 years to bring down this holding to 15% or lower, by selling down their stake to other exchanges. This approach would mean that CCs would remain majority-owned by exchanges in line with the SECC norms.

"Alternatively, the entire shareholding of a CC could be allotted to the existing shareholders of exchanges, who would then be free to trade their shares in the CC. This would allow for a clean break of the CC from its parent exchange, in a manner that is fair to the existing shareholders of the parent exchange," SEBI has proposed.

Further, it has been suggested that CCs will continue to be prohibited from listing.

Jyoti Prakash Gadia - Managing Director at Resurgent India, a SEBI-registered merchant bank, said the discussion paper correctly highlights the fact that with the widening and steep growth of the capital markets, the role of clearing corporations should be to function independently without any conflict of interest or bias in favour of the parent stock exchange.

Two divergent propositions have been proposed to spread and widen the shareholding of the CCs.

Additionally, the regulator has suggested CCs should operate as profit-making public utilities, reinvesting in technology, infrastructure, and risk management.

Besides, fee structures should remain reasonable without increasing costs for investors.

The regulator has suggested encouraging multi-asset CCs while maintaining multiple CCs to reduce reliance on a single entity and enhance systemic resilience.

The Securities and Exchange Board of India has sought public comments on these proposals by Dec. 13.