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`SE boards must have equal numbers from all stakeholders'

Our Bureau

MUMBAI, Aug. 29

A SEBI group on corporatisation and demutualisation of stock exchanges has recommended that the boards of stock exchanges should have equal representation from the various stakeholders — shareholders, brokers and investing public.

It has also said the shareholder representatives should not be a functioning broker.

The stock exchanges should convert into companies and have a Chairman and Chief Executive, it added.

On the role of Chairman and Chief Executive, the SEBI group, headed by Mr M.H. Kania, former Chief Justice of India, said both these posts be segregated and that the chairman should not be a broker.

The chief executive post is mandatory and the person would be responsible for the day-to-day functioning of the stock exchange.

The group has favoured the replacement of the trading card system by the deposit system wherein the money deposited by the member to obtain trading rights be considered as deposit with the stock exchange for trading purpose.

While the group favoured the deposit system, it has left the choice of adopting either the card or the deposit system to the stock exchanges.

It has also recommended that the Income-Tax Act be amended if necessary, so that the past profits of a stock exchange, which were not taxed when it had the character of a not-for-profit entity, are not taxed when its character changes.

In other words, the accumulated reserves of the stock exchange as on the day of corporatisation should not be taxed.

However, there would be no objection to taxation of these reserves in the hands of the shareholders when these are distributed to shareholders as dividend at the net applicable tax rate and all future profits of the stock exchange after it becomes a company.

The group feels that such tax neutrality is essential to nudge the process of corporatisation and demutualisation.

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