Self-listing by the Indian stock exchanges has been on the cards for quite some time. Securities and Exchange Board of India (SEBI) in its annual report 2006-07 had referred to such a development. In fact a recent newspaper report suggests that SEBI has proposed setting up an expert body to look into the corporate governance and ownership structure of stock exchanges. One of the key issues that the committee will look at is the self-listing by a stock exchange.
Self-listing outside India is a common phenomenon. The Australian Stock Exchange, London Stock Exchange, Singapore Stock Exchange and New York Stock Exchange are all self-listed. However, since it is a novel phenomenon in the Indian context, it would be interesting to look at some of the legal and regulatory challenges that self-listing presents.
One of the primary challenges is conflict of interest. Since stock exchanges in general enjoy extensive regulatory powers, their organizational structure will need to be closely monitored. They might get diverted from fulfilling their regulatory duties and the trust with which they have been invested. It follows from the challenge of conflict of interest as to whether the stock exchange will continue to remain impartial and allow itself to remain under the same regulatory umbrella and be regulated as others. In order to boost trade in their own stocks, stock exchanges might misuse their broad powers over broker-dealers and other intermediaries.
Further, stock exchanges regulate issuers through the listing agreement. In case of self-listing, how will the stock exchange enter into a contract with itself? Even if one finds a way out of this, a new type of a listing agreement will have to drafted since most of the current listing rules cannot be literally applied to the stock exchanges.
Self-listing outside India is a common phenomenon. The Australian Stock Exchange, London Stock Exchange, Singapore Stock Exchange and New York Stock Exchange are all self-listed. However, since it is a novel phenomenon in the Indian context, it would be interesting to look at some of the legal and regulatory challenges that self-listing presents.
One of the primary challenges is conflict of interest. Since stock exchanges in general enjoy extensive regulatory powers, their organizational structure will need to be closely monitored. They might get diverted from fulfilling their regulatory duties and the trust with which they have been invested. It follows from the challenge of conflict of interest as to whether the stock exchange will continue to remain impartial and allow itself to remain under the same regulatory umbrella and be regulated as others. In order to boost trade in their own stocks, stock exchanges might misuse their broad powers over broker-dealers and other intermediaries.
Further, stock exchanges regulate issuers through the listing agreement. In case of self-listing, how will the stock exchange enter into a contract with itself? Even if one finds a way out of this, a new type of a listing agreement will have to drafted since most of the current listing rules cannot be literally applied to the stock exchanges.
In the light of the above, it would be interesting to see the views of the SEBI committee to restructure the legal and regulatory framework governing the Indian stock exchanges to combat the foregoing and the other challenges.
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