The Securities and Exchange Board of India has given stock exchanges six months to prepare a scheme for implementing corporatisation and demutualisation as recommended by the Kania Committee.

In its communication dated January 30, 2003, Sebi has advised the exchanges to submit a scheme, together with the changes in rules, bye-laws and articles that would be required to implement the scheme, within the time frame for its approval.

Since some of the recommendations of the Kania Committee require legislative changes with regard to Securities Contract (Regulations) Act, 1956, Income Tax Act, 1956, and the Indian Stamps Act, 1899, the matter has been taken up with the central government, Sebi informed the bourses.

As per the committee report, also considered by the Sebi board, out of the 23 stock exchanges, the Bombay Stock Exchange, the Ahmedabad Stock Exchange and the Indore Stock Exchange will have to be both corporatised and demutualised.

Of the balance 20, 18 exchanges are already corporate entities and they only need to be demutualised.

The remaining two exchanges, the National Stock Exchange and Over the Counter Exchange of India, are not only corporatised but also demutualised with segregation of ownership and trading rights of members, the committee observed.

The committee, while mentioning the need for a uniform model for corporatisation and demutualisation by all the exchanges, said that the merger of exchanges, before or after demutualisation, was a commercial decision and the choice should be left to the concerned stock exchanges.

The committee, which observed that the concept of regional stock exchange has lost its relevance in the days of automated trading, however, felt that the corporatisation and demutualisation would facilitate the process of consolidation of exchanges.

Any stock exchange that fails to comply with the requirement of corporatisation and demutualisation by the appointed date, and is accordingly derecognised, will have to distribute its assets in accordance with the provisions of the respective rules and laws, the committee observed.

The committee said that the members would be entitled for shares in the corporatised/demutualised exchanges in lieu of the existing rights and the voting rights would be determined in consultation with the government.

As per the committee recommendations, the board of a demutualised exchange will have equal representation of stock brokers, shareholders and investing public, except in the case of NSE where the present structure of the board would be maintained.