Sitharaman urges financial regulators to maintain a balance between light-touch regulation and full-fledged supervision
Indian companies, both listed and unlisted, will soon be able to list their shares directly on the exchanges at the International Financial Services Centre (IFSC) in Gujarat, Finance Minister Nirmala Sitharaman said on Friday.
The move will enable “start-ups and companies of like nature to access the global market through GIFT IFSC”, Sitharaman said. “This will also facilitate access to global capital and result in better valuation for Indian companies,” she added. The finance minister was speaking at the launch of the Corporate Debt Market Development Fund (CDMDF) and AMC Repo Clearing Limited (ARCL) in Mumbai.
The announcement came as a follow-up to an earlier decision by the government to allow direct listing of Indian companies in foreign jurisdictions. A government official, on the sidelines of the same event, said the Centre could notify rules around direct overseas listings soon.
“We are competing with not only other emerging markets, but also with the advanced economies to attract investments. We need to enhance the mobilisation of domestic savings towards financial assets by easing access to financial markets and strengthening the investor grievance mechanism,” Sitharaman said.
The proposal to allow domestic companies to list overseas directly has been on the anvil for some time. However, regulatory bodies have acted slowly on it amid concerns that it will lead to the ‘export’ of the domestic capital markets. Many companies have been more comfortable with accessing the domestic markets due to availability of a large pool of overseas investors locally. In January, Tata Motors delisted from the New York Stock Exchange, citing extra regulatory burden.
Experts said direct listing at the IFSC would open up a fresh capital raising avenue for Indian companies. Earlier this month, the GIFT City IFSC got a fillip following the migration of Nifty contracts traded on the Singapore Exchange (SGX) to the NSE IX, an arm of the National Stock Exchange operating at the GIFT City. On July 25, GIFT Nifty derivatives recorded an all-time high turnover at $12.4 billion.
Advocating for a review of regulatory processes, Sitharaman urged all financial regulators to set timelines to decide on applications and maintain a balance between light-touch regulation and full-fledged supervision.
The finance minister said the work on the Securities Market Code, which looks to consolidate all laws dealing with the specific market, was near completion and would become a reality soon. “It is vital in my opinion as it is intended to consolidate the three different laws – the SCRA of 1956, the Sebi Act of 1992, and the Depositories Act of 1996 into a single Act with an updated and rationalised set of provisions,” she added.
She reiterated that public consultations would be made integral to the process of regulation, and that there was a need to review outdated norms. “Such reviews need to be comprehensive and become a permanent part of the regulatory lifecycle. Time limits to decide the applications under various regulations should be laid down in the interest of ease of doing business and for being responsive,” said Sitharaman.
Noting that market regulations should be proportionate to the risk, she called for a regulatory impact assessment to critically assess the positive and negative effects of the proposed and existing regulation and non-regulatory alternatives. “It is an important element of evidence-based policy making, and I feel this can enhance accountability and transparency in the decision-making process,” said Sitharaman.
On the launch of debt backstop facility and ARCL, Ajay Seth, secretary, Department of Economic Affairs, said though it might take time to bring volumes on these platforms, these efforts would lead to a robust development of the debt market.
CDMDF, a Rs. 30,000 crore backstop facility for the debt market, was cleared by the Securities and Exchange Board of India in March, while ARCL was first approved in-principle two years ago.
The corpus for CDMDF will be created by pooling money from debt schemes, excluding passive, overnight, and gilt funds. These will contribute 25 basis points of their assets under management towards the creation of CDMDF. The initiative aims to provide liquidity to debt schemes during periods of market stress.
Meanwhile, ARCL will help regulated entities such as AMCs, insurance companies, market makers, and short-term traders take positions and manage their risks in listed corporate bonds and debentures (non-convertible debt securities), commercial papers, and certificates of deposit.
- Single Securities Market Code consolidation nearing completion
- Periodic reviews of regulations, time limits for application of norms
- Total traded value on AMC Repo Clearing on the launch day at Rs. 480 cr
- Rs. 30,000 cr backstop facility for corporate debt market launched