The SEBI board has decided to give preference to financial institutions as investors in stock exchanges. SEBI will decide on the equity cap investor. Foreign institutions will not be treated differently they will be treated alike domestic investors because all of them will have to meet proper criteria.

The FM will decide on the equity that foreign institutions can individually and collectively own in stock exchanges because this is within the limit of FDI policy. We understand that all consultation has been held and the decision is likely soon. It is quite possible that 5 per cent will be the equity cut-off per investor though there is no confirmation on this.

The BSE has until May next year to dilute its broker held equity by 51 per cent. Earlier this year the New York Stock Exchange, which like the BSE was an association of individuals, got itself publicly listed after merging with Archipelago, another stock exchange. But to a conflict of interest it hived off its regulatory functions into a separate entity.

The BSE says that it has made a similar proposal in 2001 but that proposal was rejected. The government prefers financial institutions as investors in stock exchanges because it believes that as large volume transactors they have an interest in the healthy functioning of the stock exchanges and they will not be driven by QoQ performance or mere financial benefits.