According to sources, the RBI feels FIIs are investors in the markets and thus cannot be owners of exchanges, which are quasi-supervisory bodies. This may lead to a conflict of interest and raise issues of corporate governance.
It feels that if the government insists on portfolio investment, it should be clubbed with the overall foreign investment limit proposed by it at 24 per cent. This limit could comprise both foreign direct and portfolio investment.
Moreover, portfolio investments could be invited from entities that bring in some domain knowledge, rather than just being an ordinary investor.
The cap of 24 per cent will also provide a level playing field to domestic and foreign strategic investors in exchanges. Under demututalisation, broker-members as a whole can hold only 24 per cent in the exchange.
Incidentally, the RBI was also against allowing foreign investment in stock and commodity exchanges. In a note sent to the government, the RBI had intimated that foreign investors could be broker-members, but not owners, of the exchange.
Moreover, exchanges are not profit-making bodies and thus, by owning an exchange, there is no purpose served other than accessing data and information.
Expertise on knowledge and technology could be shared through training and buying software and this does not require picking up equity stake. In other words, foreign investment in bourses does not serve any productive purpose.
Further, in case of commodity exchanges, the RBI feels non-banking finance is the only sector where foreign investment is allowed under the automatic route.
All other sectors, such as banks, stock exchanges and commodity exchanges, are sensitive, where strategic investments can have a systemic impact.
The FDI policy in stock exchanges will have wide ramifications for existing bourses.
While the Bombay Stock Exchange will have to dilute member-broker shareholding to 49 per cent under norms for corporatisation, both the commodity exchanges, Multi Commodity Exchange of India and National Commodity and Derivative Exchange India, have invited foreign investment from Fidelity and Goldman Sachs, respectively.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
More from rediff