The Jalan Committee Report on Capital markets

A growing economy like that of India's requires huge invesment to continue the gowth momentum. This requires that scattered savings of the country that are lying untapped are pooled and sourced towards productive investment. For this it is very essential to have a well developed money and capital market. This can be done by developing market infrastructure institutions like stock exchanges, central securities depository etc. With Bombay Stock Exchange (BSE; the oldest in India) and National Stock Exchange (NSE; the largest as per amount of investment) attracting maximum investmet Indian Capital market is far away from being even oligopolistic; it is virtually duopolistic. However, the market regulator SEBI in order to develop MIIs and ensure healthy competition has started giving away operating licenses to new entrants to develop stock trading platform i.e. stock exchanges.
For long SEBI felt the need to look into several aspects of ownership and management of stock exchanges and with talks of stock exchanges being listed on the trading platform there arose a need to chalk out a balance in their motive of profit maximization and role of regulator. To look into all these aspects related to stock exchanges in India SEBI board in its meeting on 22nd December 2009 approved the appointment of a committee and the committee was finally appointed in February 2010 having six members with Bimal Jalan as its chairman.
The committee tabled its report at end of November 2010 and since then the report has been the talk of the town for its excessive conservative approach which clearly reflects the impact of global meltdown of 2008 and several inherent dillemas. Most of the financial experts have criticized it and media reports have pointed out of it being biased in favour of NSE. The recommendations of Jalan committee can be summarized under following points:

1. MIIs should not be listed.
2. There should be a cap on profits of MIIs as they being public utility should garner only reasonable profit at par with corporate sector of India.
3. The committee supports the Anchor Institutional Investor concept but restricts it to banks and public financial institutions only with allowing them to hold 24% in stock exchanges.
4. shareholding limits inclusive of all exposure of shareholders to market.
5. Minimum capital required for an exchange is Rs. 100 crore.
6. Networth requirement for having seperate clearingcorporation fixed at Rs. 300 crore.
7. Holding of exchanges in depositories to be restricted to 24% as the commitee sees holding of exchanges in depositories as conflict of interest.
8. Clearing corporations and depositories cannot invest in other class of MIIs.
9. Fair Competition with optimal no. of exchanges.