Lok Sabha approves Securities Laws (Amendment) Bill

New Delhi: The Lok Sabha has approved the Securities Laws (Amendment) Bill, 2004, to provide for the corporatisation and demutualisation of all recognised stock exchanges in the country.

In his reply to the discussion on the bill, finance minister P Chidambaram said that retail investors were the 'driving force' of any stock market and the proposed legislation would encourage their increased participation.

Chidambaram said that once the Bill becomes a law, all stock exchanges would be required to submit a scheme for corporatisation and demutualisation to the Securities and Exchange Board of India (SEBI). The scheme would have to be submitted within a time frame specified by the SEBI.

Earlier, in October, the government had amended the Securities Contract (Regulation) Act (SCRA), 1956 through an ordinance. The ordinance pertained not only to corporatisation of the exchanges but also to setting up of 'clearing corporations' and other changes in the functioning of the exchanges itself in a new regime. All the exchanges, including the Bombay Stock Exchange, will accordingly have to submit reworked schemes in light of the amendments made to the SCRA.

According to the proposed amendments, the maximum broker representation on the governing board of a recognised stock exchange should not exceed a quarter of its total strength. An earlier recommendation by the Kania Committee had stipulated broker representation of 33 per cent.

The ordinance also says that exchanges, which have approved the scheme for demutualisation and corporatisation, have to ensure that 51 per cent of the equity share capital is held by the public, other than shareholders having trading rights, within 12 months from the date of publication of the order.

The amendments give a one-year time frame to the exchanges for offloading the 51 per cent stake to the public.

Through demutualisation, ownership, trading and management in a stock exchange are duly separated. This particular process was set into motion after the stock scam of March 2001 when the government stipulated that all stock exchanges would have to mandatorily go in for demutualisation within a specified timeframe. The intention behind the move was to prevent a conflict of interest with stockbrokers who may be too involved in the management of the stock exchanges.