“The Indian securities market has witnessed dominance in trading and depository space, raising concerns on the possibility of excessive concentration and institutional tardiness in quickly responding to the changing market dynamics, which may have an adverse bearing on efficiency in trading, supervision and risk management practices,” the regulator said in a press statement.
Another dominant trend shaping the exchange and depository landscape is the emergence of new technologies such as distributed ledger technology, artificial intelligence, machine learning etc, the regulator said.
Sebi’s move comes in the backdrop of multiple technological failures encountered by the NSE and both the Central Depository Services Ltd and National Securities Depository Ltd over the past few years and concerns over dominant market shares of these companies.
“A need is, therefore, being felt to forge a competitive landscape in MIIs’ space by facilitating new players, who may like to challenge other MIIs in their already established domain,” the regulator said.
NSE currently controls more than 95% of the equity derivatives trading volume in India, while it also holds a dominant position in cash segment trading in the stock market. Similarly, NSDL and CDSL run a duopoly in terms of providing depository services in the country.
Sebi has proposed to allow a higher ownership in market infrastructure intermediaries at the initial stage with a gradual reduction in shareholding over a period of time.
An Indian promoter can hold up to 100 per cent stake in a market intermediary and reduce the stake to 51 per cent or 26 per cent in next 10 years. A foreign promoter can start a market infrastructure intermediary with 49 per cent initial stake, which can be brought down to either 26 per cent or 15 per cent in 10 years.
Sebi has proposed that up to 50 per cent of the ownership in a new market intermediary should be held by individuals or entities with minimum five years of experience in capital markets or technology related to financial services.
Sebi has also proposed to allow up to 100 per cent ownership in existing market infrastructure intermediary, provided that an acquisition of more than 25 per cent stake should be approved by it.
Foreign entities may hold up to 49 per cent stake in existing market infrastructure intermediary, which should be later cut to 26 per cent or 15 per cent within 10 years. Such an acquisition of more than 25 per cent stake will need Sebi’s prior approval.
The appointment of managing director and chief executive officer shall be for a maximum three terms of three years each instead of two terms of up to five years each, the regulator said.
Sebi has invited comments from market participants and the public on the proposal by February 5.