Depending on the number of registered cos, we will launch the Prime index: CEO of NSE
Last week, the National Stock Exchange (NSE) launched NSE Prime, a class of companies that agree to meet the higher standards of corporate governance set for Prime and will voluntarily be part of it. Vikram Limaye, Managing Director and CEO of NSE, told Sandeep Singh that if Prime will provide investors with a universe of identified companies with higher governance standards, companies will benefit from the brand’s reputation and potentially a premium. on the evaluation. Edited excerpts:
What is the reason for the creation of NSE Prime?
We are creating a class of companies that we call NSE Prime. They would voluntarily adhere to the governance standards set for the Prime category, which goes beyond what is required by Sebi’s Registration and Disclosure Requirements Regulation, 2021.
Companies will have to meet these standards in order to be admitted to this list and then comply with them on an ongoing basis. If someone does not meet the standard for an extended period of time, they will have to leave the Prime category. From a reputation standpoint, that won’t be good as they’ll have to disclose why they had to quit Prime.
As it is voluntary, it sends the right message that these companies are ready to raise the bar to take responsibility.
What are the criteria that these companies will have to meet?
The minimum public participation is expected to be 40 percent against a 25 percent LODR requirement. It is also compulsory to separate the functions of Chairman and Chief Executive Officer.
Even on the committee membership front, there are some changes. Companies should have an independent director as chairman of the risk management committee, the stakeholder relations committee, the nomination remuneration committee and the audit committee. In addition, three quarters of the members of the audit committee must be independent.
In addition, a director of the board of directors of a Prime category company cannot sit on the board of directors of more than five public limited companies.
How do you think this will help?
In our country there are many companies run by promoters and if the promoter owns 75% what ends up happening is that the decision making and the way in which the resolutions are passed are, to a large extent also , controlled by the promoters, because it takes 76%. one hundred for special resolution. However, if 40 percent of the shares are not owned by the promoter, the promoter must also gain the support of other shareholders. We are also trying to establish more and more independence in the composition of committees. Thus, they will contribute to better governance and better protection of shareholders’ interests.
How many companies currently meet the criteria you specified?
The reality is that every company will have to reorganize the committees to qualify. However, if we take the more difficult 3-4 criteria such as minimum public participation, segregation of president and CEO, then there are just over 200 companies that would be eligible. These companies cover Nifty 50, 50-100, 100-200 and over 200. So we have a good mix of companies of all market caps.
Our hope is that if we integrate at least one core business group, it will impact others who wish to enter.
Are you planning to come up with an index of these companies?
We give businesses six months to register. Depending on the number of registrants and being part of it, we will subsequently produce an index.
How will this benefit the investor and businesses?
At least you know that companies in the category adhere to the highest standards of governance set for Prime.
From an investor perspective, governance has been a big concern and over time several prominent governance issues have arisen in both the financial services and the non-financial space. Although ESG is a larger framework that people are increasingly focusing on, this will highlight âGâ and âGâ has long been a concern in India. It will offer investors a universe of identified companies with higher standards of governance.
The company would get a brand reputation and potentially a premium on valuation and better quality investors who would want to invest in such companies.