The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (“SECC Regulations”), permits recognised stock exchanges to list their securities on any recognised stock exchange other than itself. In recent months, there has been a push from shareholders to list recognised stock exchanges with a view to make the divestment of their shareholding easier. While there is still no consensus on whether permitting them to list is desirable, certain stock exchanges have raised macro concerns regarding the present regime. For instance, stock exchanges would prefer to be listed on their own platforms as opposed to that of a rival exchange, citing concerns regarding confidentiality. Further, there are concerns regarding the foreign investment limit of 49% being very high.

Without addressing these concerns, SEBI has issued a circular dated January 01, 2016, prescribing modalities and additional requirements to ensure compliance with the SECC Regulations at the time of listing of a stock exchange. The SECC Regulations also prescribes maximum limits for individual and group shareholding in stock exchanges. In order to ensure compliance with these restrictions post listing, the circular has tasked depositories with putting in place mechanisms to prevent acquisition of excess shareholding. Coordination between depositories has been mandated and monitoring must take place on a daily basis. If these limits are breached, depositories have been empowered to initiate actions such as freezing of voting rights and corporate benefits until the shareholding is divested through a special window.

While the circular is a necessary measure to ensure compliance with the applicable regulations, it would be prudent to take measures to address the macro concerns of the stakeholders as well.

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Date:July 6, 2016