Bourses should not be listed: SEBI Chairman

Stock exchanges should not be listed; and while they may be profit making entities they cannot be profit maximising ones, said SEBI chairman, Mr C.B. Bhave at the general meeting of the Asia Pacific Securities Depository Group. Mr Bhave was endorsing the recent report of the Bimal Jalan committee on governance and ownership issues of market infrastructure entities.



Regulatory role

Mr Bhave emphasised the need for stock exchanges to be more than `mere trading engines' and play more of a regulatory role. "In our opinion, profit maximisation cannot be the goal of this infrastructure entity. Stock exchanges have certain regulatory functions embedded in them which cannot be segregated, (while the) world seems to be going in different direction," he said. "However, they ought to be profit-making companies and open to market competition. Therefore, what we need to do is find an in-between space for these organisations to be profit-making, but not profit-maximising entities." He added that linking salaries of the management heads to profit margins would also drive stock exchanges towards profit maximisation. "Management compensation cannot depend on profit margins as it will then drive these entities to profit maximisation defeating the purpose." The Jalan committee report, according to him, had held views and made recommendations which were different from the current world view. "This committee's recommendations are different from where the world is going in relation to the area of stock exchanges. In most of the jurisdictions, there is only one depository and one clearing entity." "To my mind it is worth deliberating whether the stock exchanges are not mere trading engines. If they were mere trading engines, it will be very easy to come to the conclusion that they are subject to free market forces. So we need to understand the consequence of free market forces on exchanges," said Mr Bhave. "Stock exchanges should not be listed. Suppose, if you are regulating brokers, lets say, and you find that a broker has done something wrong and he is the one giving you maximum volumes, what will you do? Will you take action against him? The profit maximisation motive says don't take action because he is your best person. But regulatory action says you need to take action. So there is a conflict. Therefore, profit maximisation is not a good thing for these infrastructure entities." he explained. – www.thehindubusinessline.com