PRESENTATION ON:-

DEMUTUALISATION of INDIAN STOCK

EXCHANGE.

SUBMITTED TO:-
Dr. SURYA DEV.
SUBMITTED BY:-
SHANKAR KUMAR SINGH 07F042.
SOHINI SAMANTA 07F044.
SOUMYA TRIPATHI 07F046.
SUBHOJIT DAS 07F048.
 INTRODUCTION
Earlier the stock exchanges in India are formed as
association of stock brokers. Stock exchanges were
mutual organizations that were managed by
members in a single city with a huge dealer
population. They were registered as what is known
as section 25 companies or as not-for-profit
organization. Organizational profit making was
never the motive; the exchanges required funds
only the extent of meeting its expenses. Any
surplus made by the exchange resulted in reduced
access fees for members.
DRAWBACKS
• The conflict of interests between
the owners , the members and the
management.
• Brokers were manipulating the
market for their advantage
• Scams took place in pre-
demutualisation phase
• Lack of strict vigilance on the
market
DEMUTUALISATION
• Demutualisation means converting a
“not for profit" organization into a “for
profit”organization.It implies that a
mutually owned association is converted
into a company owned by shareholders.
BSE is converted into BSE LTD.
• They are clearly separated like a
commercial entity.
• The Stockholm Stock Exchange was the
first stock exchange to be demutualised.
It is an European based stock exchange .
ADVANTAGES OR REASONS FOR
DEMUTUALISATION.
• Rationalized Governance:-For
interest of customers and
transparency.
• Investors Participation:- Both
institutional and retail investors.
Block trading.
• Competition From ATS’s And
Electronic Communication Networks:-
Alternate Trading Systems . Provides
cheap and efficient access to quoted
stocks. To cope up with competition .
Continued……………
• Globalization:-Traditionally
exchanges were locally fixed.
Through alliances , exchanges seek
to attract more investments.
Product variety is also available .
• Resources For Capital Investments:-
Screen trading replaced floor
trading. Customers have direct
access to screens. Traders becomes
a dominant force in exchange
SEBI’s GUIDELINES.
SEBI has issued its guidelines on 13-11-2006
for investment in stock exchanges in India
-
Under the guidelines, shareholding of trading members has to be
brought down to 49% which can be done in the following way :-
• Offer for sale by prospectus by existing trading
members having ownership shares.
• Placement of shares of shareholders having trading
rights to such persons or institutions as may be
short listed by the exchange with the approval of
SEBI .
• Issue of equity shares on private placement basis
by the stock exchange to any person or group of
persons not having trading rights subject to
approval of SEBI.
LIMITATIONS BY SEBI.
• No person shall directly or indirectly
acquire or hold more than 5% in the
paid up capital .
• No person shall either individually or
together with persons in concert with
him acquire and or hold more than 1%
of the paid up capital.
• Foreign investment up to 49% will be
allowed in stock exchanges with a
separate FDI cap of 26% and FII cap of
23%.
• No FII shall seek and get representation
on the Board of Directors of stock
exchanges. No foreign investor
including persons acting in concert will
DEMUTUALISATION OF BSE.
• The Bombay stock exchange. Asia’s oldest
stock exchange with 131 year old history.
• It was corporatised on 19 May 2005.
• Around 51% stake of 790 brokers were
offloaded to 21 investors. Like SBI, LIC,
Aditya Birla Group, beside Deutsche Borse
and Singapore Exchange.
• 19 investors have picked up 41% stake.
• 10% by Deutsche Borse and Singapore
Exchange.
• Rs 189 crore.
DEMUTUALISATION OF NSE.
• The National Stock Exchange was formed
in November 1992 as a tax paying
company.
• Owned by a set of leading financial
institutions. Like:-
Industrial Development Bank of India
Limited.
Industrial Finance Corporation of India
Limited.
National Insurance Company Limited.
Infrastructure Development Finance
Company Ltd.
DEMUTUALISATION OF NCDEX.
• National Commodity & Derivatives Exchange
Limited.
• A public limited company incorporated on April
23, 2003 under the Companies Act, 1956. It
obtained its Certificate for Commencement of
Business on May 9, 2003. It commenced its
operations on December 15, 2003 . NCDEX
currently facilitates trading of 57 commodities.
•
COMMITTEE FORMED FOR
SUGGESTION.
• Under the chairmanship of Justice
MH Kanai a group was constituted by
SEBI to advice on the matter of
corporatization and demutulisationof
exchanges.
• Some suggestions are :-
1) Stock exchanges be converted
into companies limited.
2) Amendments be made to Income
Tax Act 1961.
Continued…
3) Amendments also required in Indian
Stamps Act 1899 and Sales Tax law.
4) The current system of permission to
trade on the basis of ownership of a
trading card be replaced by a system
where money is deposited to obtain
trading rights.
5) Shareholders, brokers and investors
are equally represented.
6) A uniform model to be adopted.
7) The merger of stock exchanges is a
commercial decision that would be left
to the stock exchanges
DEMUTUALISATION OF REGIONAL STOCK
EXCHANGES
 Government ask for demutualisation of regional
stock exchanges in two way:-
1)Either by trading arms of BSE & NSE ,or
2)no.of regional stock exchange join hands to make
a separate platform.
 Nine exchanges recently signed an MOU with the
National Stock Exchange (NSE) to extend its
trading platform on the regional stock exchanges.
The nine exchanges include Interconnected Stock
Exchange of India (ICSE), Ahmedabad Stock
Exchange and so on.
 Out of 21 stock exchanges till now 17 are
demutualised.
 The stock exchanges not demutualised are :-
Continued….
1) Coimbatore Stock Exchange.
2) Mangalore Stock Exchange .
3) Meerut Stock Exchange .
4) Uttar Pradesh Stock Exchange.
Process of Demutualization

 All the assets are valued by the

exchange which include the value of
seats .
 Then the total value was founded and
divided into share.
 Those shares were offered to public.
 The stock exchange list the share the
shares.
 The members of the exchange will
get there payment of their seat from
the funds available through the sale
Continued
• If any person is admitted as
trading member then uniform
standards will be followed in terms
of capital adequacy deposits fees .
• The public apart from shareholder
who have trading right will hold at
least 51% of its equity shares.
RESARCH AND METHODOLOGY.

PERFORMANCE OF THE B.S.E INDEX.

B.S.E Indicies

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9000
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TURNOVER IN THE B.S.E
INDEX.
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Challenges of Demutualization
• No change in the conflict of interest if
an exchange is converted from an
association of persons into public
limited company.
• The same board and the same
organization structure is still existing
and nothing much is achieved.
• Difficult in part of government also to
solve the management problem.
• Many argument also given that
demutualization itself cannot achieve
improved governance.
Members of BSE and NSE
• BSE:-
1)18 Board members
2)1 Chairman
3) 1 Managing Director
4)8 Independent director
5)7 Broker director
• NSE:-
1) 1 Managing director
2) 2 SEBI nominees
3) 4 Public representatives
4) 4 Independent director
5) 8 Share holder’s
representative
Conclusion
• If the stock exchange are the self
regulatory in nature they find ways
to profit making.
• The exchange have option of
setting up separate entity within
stock exchange defining the
regulatory power.
• Though demutualization is
beneficial man stock exchange is
hesitating to adopt because they
may loose identity.
• Fear of paying huge tax
References
• ICFAI Journals of 2005.
• Financial market & services, By
Gordan & Natrajan.
• Http://www.livemint.com
• nseindia.com
• Bseindia.com
THANK YOU