As part of capital market reforms, the government is planning to amend the Securities Contract Regulation Act, the Income Tax Act and the Stamp Duty Act in the Budget session to facilitate corporatisation of stock exchanges.

Although the amendments would be in line with the Justice Kania committee report appointed by Securities Exchange Board of India last year, official sources said that there would be some modifications in the panel's suggestions.

The finance ministry is giving final touches to amendments in SCRA to empower Sebi to implement demutualisation of bourses.

Once the amendment is carried out, all the stock exchanges run by broker members would have to submit their corporatisation scheme to Sebi, which would have the powers to either accept it or reject it.

The government would also bring in changes in the Income Tax Act to facilitate transfer of assets.

Some of the bourses like the Bombay Stock Exchange have already prepared a blueprint for demutualisation and given representations to Sebi.

According to a BSE board member, BSE has requested the government to allow the bourse to continue functioning with the present set up.

The premier bourse has to increase the number of professionals in their board and bring down the number of broker members.

BSE has already registered BSE Financial Ltd as the corporate entity of the bourse.

To facilitate the transfer of assets from the bourses to the corporate entity, the government is planning to amend the Income Tax Act. The Stamp Duty Act would also be amended to exempt the bourses of any such duties as it would virtually wipe off their capital.

All the three amendments are likely to be introduced in the Budget session of Parliament.

The demutualisation of bourses was taken up actively by the government and Sebi after the stock scam of 2000-01, when some of the broker members allegedly used price sensitive information to manipulate the market.

While Sebi has initiated stringent measures to separate brokers from running bourses, government needs to amend the laws to facilitate the process.

Market sources said many of the bourses like BSE and DSE are ready to implement the demutualisation process by the next fiscal.

As regards other regional bourses, sources said they may either merge with premier exchanges or perish.

The government, it is believed, is also not in favour of encouraging smaller and loss-making bourses to continue their operations.

Corporatisation would necessitate a stock exchange to register a separate company to run the exchange. The company would also have to be listed.

Since majority of the bourses are running at a loss, the possibilities of their getting listed is minimal as Sebi norms provide that a company has to make profit for three years to qualify for listing.

Run-up to the Budget 2003