Experts divided over self-listing

National Stock Exchange
While the National Stock Exchange of India (NSE)’s demand to self-list has not gone down well with some of its shareholders, self-listing is an accepted practice in certain developed markets.

Self-listed stock exchanges include the Australian Stock Exchange (ASX), Hong Kong Stock Exchange, Singapore Stock Exchange, London Stock Exchange, Euronext and Nasdaq.

“Self-listing is an accepted practice in certain developed markets wherein the conflicts of interest are under check because of segregation of regulatory functions of the self-listed stock exchange,” said Tejesh Chitlangi, partner, IC Legal.

“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.

An exchange official added that the NSE would prefer to be regulated and supervised by a superior, proper and competent regulatory body rather than a competing exchange or corporate entity.

Most of these exchanges have found a way around to deal with the inherent conflict of interest that comes with self-listing, said experts.

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.

“These arrangements provide a very comprehensive framework for fresh demarcation of regulatory functions between regulators and self-listed exchanges internationally,” said a person, who did not want to be named.

Exchanges have twin roles: commercial and regulatory. The commercial function includes providing a platform for listing, trading and provision of other services. Regulatory role involves regulating the listed entities and brokers and other intermediaries.

Under the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, both the functions are required to be segregated and exchanges have done the same. “Since these functions are segregated, it does not matter whether the exchange opts for self or cross-listing as the regulatory role is clearly defined. Further, the obligations of a listed entity are also clearly defined under Sebi Listing and Disclosure Requirement Regulations, 2015. Hence, the issue of conflict of interest, which may arise in case of self-listing is mitigated significantly through Sebi Regulations itself,” said Sudhir Bassi, executive director, Khaitan & Co.

However, experts believe India is not yet ready for self-listing owing to the lack of transparency among Indian exchanges. “Indian exchanges are perhaps not currently geared up for self-listing because of non-segregation of regulatory functions from day to day operations and due to certain other conflicts arising out of the rigorous oversight which the Indian exchanges exercise over the listed companies,” said Chitlangi.

According to P R Ramesh, a Bombay High Court lawyer, self-listing is not in the interest of investors because of the inherent conflict of interest. “It sacrifices listing quality, as well as regulatory and supervisory roles.

Before listing of exchanges is considered Securities and Exchange Board of India (Sebi) should set up an institutional mechanism such as independent listing authority to segregate for-profit and not-for-profit activities.”

Interestingly, NSE’s rival BSE has publicly stated that it is okay with cross-listing. “The BSE has no objection in providing compliance-related details on a timely basis to the NSE, so that it is disseminated to the investors immediately for taking informed decisions. Information passing through multiple layers could delay such dissemination,” said the exchange in an email response.

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.

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