Foreign investment in SEs may be capped at 49%
The policy would pave the way for New York Stock Exchange's reported move to acquire equity in BSE.
By PTI |
NEW DELHI: The Finance Ministry is likely to cap foreign direct investment in stock exchanges to 25 per cent and foreign institutional investment to 24 per cent, paving the way for New York Stock Exchange's reported move to acquire equity in Bombay Stock Exchange.
That way, the total foreign equity likely to be allowed in stock exchanges will have a ceiling of 49 per cent, Finance Ministry sources said.
The new directive is likely to come through a notification by the Finance Ministry, they said, adding that RBI may also issue such a notification under the Foreign Exchange Maintenance Act.
According to existing FEMA norms for portfolio investment, an FII can invest up to 5 per cent in a company, while maximum three FIIs are allowed to hold 24 per cent in consolidated form in a company. FIIs are also allowed to invest beyond this level and up to sectoral caps subject to certain conditions.
A new category of investment in stock exchanges is likely to be put in the list of foreign investment once the ministry comes out with a notification.
The policy would clear the way for foreign investment in bourses while divesting brokers' equity in them below 49 per cent, in line with SEBI guidelines on demutualisation.
But since the Government has made it mandatory for all the bourses to corporatise and demutualise, the policy becomes inevitable, the sources said.
While the policy on foreign investment will be framed by the Union Government, market regulator SEBI would issue regulations on mechanism of demutualisation, which basically means that trading activity and the management should be controlled by separate entities.
Many stock exchanges like BSE are awaiting the FDI policy and regulations on demutualisation from SEBI.
BSE had reportedly made it clear that 26 per cent of the stake would be sold to strategic investors and the remaining 25 per cent through an IPO.
NYSE officials reportedly recently met their counterparts in BSE, giving rise to speculation that the exchange would pick up a stake in it.
BSE has appointed Kotak Mahindra Capital Company as its financial advisor for the demutualisation process.
However, BSE MD and CEO Rajnikant Patel time and again refused to specify whether the NYSE has expressed interest in buying a stake in BSE.
He had also said that the IPO is linked to demutualisation regulations, which are yet to be finalised.
May, 2007, is the deadline for BSE to bring down brokers stake in it to 49 per cent.
NASDAQ has reportedly expressed its keenness to pick up stake in Bombay Stock Exchange.
The need for FDI policy on stock exchanges was not felt earlier since most of bourses were not companies but associations of persons and not demutualised, which meant that traders held equity in these bourses, the sources said.
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