We have frequently pointed out that the National Stock Exchange (NSE) is a secretive organisation. The transparency of its trading platform does not extend to its own operations. It is fighting a hard, legal battle to avoid application of the Right to Information (RTI). It lost a case in the Delhi High Court having challenged a ruling of the chief information commissioner (CIC) that the RTI Act was applicable to it and has filed an appeal before a divisional bench of the same court. The Securities and Exchange Board of India (SEBI), which has been accused of a strong pro-NSE bias by the MCX group, has done nothing to ‘persuade’ the bourse that as a first-line regulator, it falls under the definition of ‘State’ for application of the RTI, even if it insists it is just a private company. The regulator’s benign attitude to the NSE would have been unexceptional, but for the fact that both SEBI and the Reserve Bank of India (RBI) use every opportunity to emphasise and underline the fact that bourses are ‘public utilities’ (both regulators made this point last month, at the launch of the United Stock Exchange, the latest entrant to the currency derivatives segment). But the order of KM Abraham, SEBI’s whole-time director, rejecting MCX-SX’s application to trade equities is stunning. He has chosen to quote copiously from the Delhi High Court judgement against the NSE in the RTI case. He says (para 106), “In the above case, the Honourable High Court of Delhi has laid down an insightful and elaborate exposition as to why a Stock Exchange is a ‘State’ in fact in Paragraphs 13 to 61 of its judgement. I find these very pertinent to the issue on hand.” He then quotes from the CIC’s ruling in the NSE case and says, “(T)he short point that emerges is that the Honourable Supreme Court (sic: he probably means Delhi High Court) has confirmed that a Stock Exchange enjoys state conferred or state protected monopoly status; carries out important public/state functions that of controlling and regulating the transactions in securities in the country and is ‘State’ under Article 12 of the Constitution of India.” A few more paragraphs of such quotations are pompously used to explain why SEBI is applying extraordinary standards of ethics and compliance to reject MCX-SX’s application.
According to Mr Abraham, it is “because financial institutions like Stock Exchanges are central to the national economy and at the core, there would be the issue of safety of the wealth of the citizens who avail of the services they offer,” that the ‘legislature’ has not prescribed a list of eligibility conditions for granting a licence to a stock exchange, but has left it to SEBI to determine the issue if it “considers appropriate in public interest.”
The breathtaking hypocrisy of SEBI’s position has to be seen in the context two issues. First, if this is, indeed, SEBI’s opinion, why hasn’t Mr Abraham issued a directive to the NSE that it must comply with the provisions of the RTI Act? Secondly, where were these high standards when the entire SEBI board, bent and twisted every standard of governance to protect chairman CB Bhave in connection with SEBI’s own action against the National Securities Depository Limited (NSDL) over its questionable role in the IPO scam of 2006? This is yet another in a long list of examples of SEBI’s elastic standards of regulation.— Sucheta Dalal