Finmin for 49% foreign stake in bourses

Guidelines on foreign shareholding by November 15

NEW DELHI: The finance ministry will come out with guidelines on foreign stake holding in stock exchanges by November 15.  Sources in the ministry said North Block, which is the deciding authority when it comes to foreign stake in local stock exchanges, was favouring a cap of 49%.

The Securities and Exchange board of India (Sebi) board, which met here on Thursday, decided that financial institutions will be given preference to be the majority stakeholder in stock exchanges.

The Sebi board decided to have a 49% cap on domestic broker holding in demutualised, corporatised stock exchanges, while the remaining 51% would be for non-brokers, including foreign investors.

“The cap on single entity holding would be decided by Sebi in consultation with the Reserve Bank of India,” a finance ministry official said.

The RBI representative on Sebi board, deputy governor V Leeladhar, was not present during the meeting and therefore, a final view on the issue could not be taken. The board also asked the government to firm up a final view on foreign investment.

“The issue is with finance minister P Chidambaram’s office. The minister had a meeting with RBI governor Y V Reddy in Hyderabad on Friday, and the issue may have come up for discussion,” said a North Block official.

Under the Securities Contracts (Regulation) Act, 1956, the finance ministry has the final say on the issue of foreign stakeholding.

The official added there was no disagreement between RBI and the finance ministry on foreign direct investment though the central bank wants a cap on the foreign institutional investors’ (FIIs) equity holding in the corporatised exchanges since it can create market imbalance. The two sides, however, agree on separate caps for FDI and FII equity holding in the corporatised exchanges.

“There would be reporting requirements that FIIs would be required to fulfil. This includes informing the government of any change in the range of 1% equity holding,” said the official.

Sebi had approved and notified the corporatisation and demutualisation scheme of 19 stock exchanges after Parliament passed a legislation to the effect.