Mumbai: The National Stock Exchange (NSE) is planning to push for higher corporate governance norms in India by replicating Brazil’s successful Novo Mercado (new market), a listing segment that comprises shares of companies that commit themselves to more stringent standards than those mandated by law, said two people with direct knowledge of the matter.
The exchange is readying to launch NSE Prime, a list of Indian companies which follow stricter governance norms than those required under domestic laws, the people told ET on condition of anonymity.
Once the platform is launched, the NSE will give an option to the eligible companies to sign up for the Prime membership. To be eligible for Prime, a listed company will need to have at least 40% public shareholding, in addition to other requirements including a minimum of eight and a maximum of 15 board seats. In contrast, the current rules of the Securities and Exchange Board of India (Sebi) prescribe minimum public shareholding (MPS) of only 25%.
Besides, for Prime membership, the managing director of the company and its chairman should not be related. Further, the promoters of the company will need to disclose the financial health of other companies that they exert control over.
Queries emailed by ET to the NSE remained unanswered till press time.
“Essentially, the NSE is looking for companies to sign up for higher standards of corporate governance, and wants to recognise the ones that achieve these standards,” said a person privy to the development. “A few years down the line, the NSE may even consider coming out with an index based on the Prime membership.”
This model was first introduced by Brazil’s leading bourse Brasil, Bolsa, Balcao in 2000. Since then, the platform, Novo Mercado, has become the new standard for aspiring companies. The majority of new listings in Brazil over the past decade have been on Novo Mercado and foreign funds have preferred to trade in companies that are under Novo Mercado, owing to higher governance standards.
The bourse also created an index based on Novo Mercado which has consistently outperformed Brazil’s benchmark Ibovespa, according to market participants. The London Stock Exchange, among other bourses, has tried to replicate the Brazilian model.
The plans to launch NSE Prime come at a time when market regulator Sebi is facing opposition from listed companies against several corporate governance reforms. In 2019, the market regulator wanted to increase the MPS applicable to listed companies. However, the proposal ran into opposition from promoter-driven listed companies which were concerned that the new rules could force them to sell their shares and concede control.
“Making the rules stricter is difficult to implement since a handful of promoter-driven companies will oppose it. Hence India should instead look at making the higher standards optional, and the companies who comply should be rewarded,” said another person. “About 200 listed companies could be eligible for NSE Prime membership,”
Companies could benefit from being part of NSE Prime by attracting more funds from the environment, social and governance (ESG) sector. Globally, ESG funds have seen increasing inflows in the past few years. Governance is an important factor in determining the ESG score.
Denial of responsibility!NewsBit.us is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
