Cross Listing of Stock Exchanges: Strengthening Self-Regulation?

Abstract:     
Stock Exchanges act as Self Regulatory Organizations (SROs) and the very nature of this function necessitates acting beyond their own monetary gains in order to secure good governance. Conflicts of interest are antithetical to the role of an SRO. Internationally, competition and rapid technological changes have actuated Stock Exchanges to move from a mutual association model to a public limited company model through a process called 'demutualization'. However, demutualization has posed a new conflict of interest situation before these exchanges: Self Listing i.e. listing on their own circuits.

Currently, the process of Stock Exchange demutualization is going on in India and the Indian capital market regulator; the Securities and Exchange Board of India (SEBI) is searching for solutions concerning the issue of their listing. This issue, carrying with it a huge potential for abuse, is neither new nor specific to India as most major stock exchanges in the world have already the treaded the path of self-listing. However, the solution proposed by SEBI is novel and unprecedented viz. cross-listing of stock exchanges.

In this paper we examine the pros and cons of this invented solution to deal with conflict of interests arising out of self-listing of stock exchanges and the potential impacts on the working of stock exchanges in India. Deriving support from international experience on self-listing, we conclude that cross listing cannot be the sole solution in the post-demutualisation phase and has to be in addition to self-listing along with measures to manage the potential conflicts of interest.

Final Chapterization:

I. INTRODUCTION
II. SELF LISTING: NUANCES EXPLORED
(a) Demutualization leading to listing
(b) Why Self-listing?
(c) Conflict of Interest?
(d) International experience
(III) CROSS-LISTING: A SOLUTION?
(a) Dimensions of cross-listing
(b) SEBI's advocacy for cross-listing
(c) Making cross listing mandatory: How far viable?
(IV) CONCLUSION

Number of Pages in PDF File: 16

Keywords: Stock Exchange, Self Listing, Cross Listing, Self Regulatory Organization, Demutualization, India, Bombay Stock Exchange

JEL Classification: K22, K23, K29

Accepted Paper Series