LIC’S voting rights in NSE partially frozen
Life Insurance Corporation of India’s (LIC’S) acquisition of IDBI Bank has led to intended consequences. The markets regulator, Securities and Exchange Board of India (Sebi), has partially frozen LIC’S voting rights at the National Stock Exchange (NSE).
The reason is the 5 per cent shareholding cap on trading members. However, LIC is not a trading member, following its acquisition of IDBI Bank, which is a trading member of the NSE. Now, the stake of LIC includes that of IDBI Bank.
Sebi rules prohibit a trading member to hold more than 5 per cent of the paid-up capital of a stock exchange “directly or indirectly”. A trading member is the entity that facilitates trading on a stock exchange.
Earlier this year, LIC completed the acquisition of a 51 per cent stake in the beleaguered lender IDBI Bank from the government. The NSE has reclassified LIC as an “associated trading member ” from being a “public shareholder.”
LIC currently holds a 12.51 per cent stake in the NSE, while IDBI Bank and its subsidiary IDBI Trusteeship Services hold another 1.45 per cent stake, taking the total shareholding to 13.96 per cent.
“Voting rights of LIC to the extent of 4.89 per cent is frozen pursuant to Sebi letter dated May 13, 2019,” says a disclosure made by the NSE.
The freeze is to the amount by which a trading member’s shareholding exceeds the cap. The shareholding of trading members in the NSE is 53.84 per cent. A Sebi circular says the shareholding of trading members or their associates and agents cannot exceed 49 per cent.
The Sebi circular also says depositories have the power to freeze their voting rights and all corporate benefits till the time the shareholding of a trading member comes down to 5 per cent.