Bimal Jalan Report

Bimal Jalan Committee was setup by SEBI to 'Review Ownership and Governance of MII (Market Infrastructure Institutions) .
Background
Formation of NSE ended investor-unfriendly pratices of existing exhanges and povided tehnologial innovations and reform in industy. NSE was able to capture market in equity , daivative tradings. But with rise of MCX , the monopoly of NSE in derivative trading is threaten by MCX. Now MCX wants to enter equity domain by MCX-SX. SEBI turned down the application on grounds of ownership structure. MCX-SX has taken SEBI to court . SEBI has constituted the Bimal Jalan Committe to "review the ownership and and Governance of MII"
What is MII ?
MII create, facilitate capital market in its operation by providing infrastructure for trading , clearance. It includes depositories, exchanges and clearing corporation.

The number of stock exchange in India has shrunk. Currently there are only two main exchanges BSE and NSE. Since exchanges are profitable business it is expected that many new exchanges will come up in near future. New rules and regulations are requires for ownership and effective governance of exchange.

Suggestions by Bimal Jalan Committee.
1. Non- Listing of MII on stock exchange.
The propose is to avoid foul playing in price of MII stock. Since MII owns exchange there is possibility of foul play with price of MII stock. Non - Listing will led to non- availability of price for trading of MII stock and fewer exit options for investor. This can discourage investors from investing in MII.
2. MII will not be allowed to make unreasonable profit.
Report states that since MII are facilitating market and is public utility it should earn reasonable profit. Profits of MII are capped. Investing in MII and raising resources for MII will become difficult with profit cap. and non- listing.
3. Only banks and public finance institutions can be anchor institution.
To make it more lucrative for banks and PFI, committee has increased the maximum holding limit from 15% to 24%. Anchor institution will take lead in setting up of MII . Since Banks and PFI 's core line of business is not MII hence they always remain passive investors.
4. Minimiun capital required for exchange is rs 100 Crore.
Rs 100 Cr is very less. To setup an exchange of NSE and BSE level an investment of more than Rs 1000 Crore is required.
5. Clearing house should have net worth of Rs 300 cr.
Banks and Insurance companies have higher risk involved as compared to clearing house still the networth requirement for Banks and Insurance is Rs 300 Cr. and Rs 100 Cr. Setting high net-worth requirement may discourage investors.
6. Capping vaiable pay to Executives.
This would reduce pay performance link in executive compensation. As a result one can hardly expect executives to be ever-ready to adopt the latest global best practices and technological innovations to maintain service standards.

Biggest criticisms of the Jalan Committee recommendations is that it would perpetuate NSE’s monopoly and restrict competition in the sector which, in turn, will slow down innovations in an extremely dynamic in-dustry and possibly reduce service quality.