Corporates who desire to have their securities listed with multiple stock exchanges have to undergo a lengthy chorus of steps individually with each exchange, as the exchanges follow different rules and procedures. Under the current dispensation, while it is compulsory to list a security on a regional exchange, the security can also be optionally listed on any number of other exchanges. Unless the regional exchange agrees to list a security, it can not be listed on any other exchange. The issue fails if the regional exchange refuses listing. The issue also fails if any of the exchanges, to which application for listing has been made, refuses to list the security.

"This arrangement generates unhealthy competition. There is a competition among the issuers to list securities on as many exchanges as possible to attract investors from all over the country and waste resources to comply with the listing requirements of a number of exchanges simultaneously. Similarly there is a competition among the exchanges to attract as many issuers as possible at times leading to dilution of listing standards particularly when annual isting fee constitutes a major source of income for many of them.

"A corollary to the above is that there is a lot of avoidable waste. For all practical purposes, listing agreement is a one sided agreement, rather an undertaking, requiring the issuer to agree to all the conditions prescribed at the time of signing the agreement or to be prescribed subsequently. The agreement is also amended unilaterally. The issuer has absolutely no choice in the matter as none of the terms is negotiable. The issuer is deemed to have agreed to comply with anything that may be prescribed at any time in future. Even the stock exchange does not have any freedom to vary any of the terms of the agreement. Why should we call it an agreement if both the parties to it have to blindly abide by it? Why should there be separate agreements for each security if it is the same agreement? Why should an issuer sign the same agreement with a number of exchanges? Or why should the request for listing be considered by different exchanges separately? Why should a company comply with listing agreement with different exchanges? Or why should a number of exchanges monitor compliance by a company? There are about 10,000 companies listed on Indian exchanges. Assuming that each company is listed on average on four exchanges (BSE has 9810 listed companies as against 1812 primary listings at the end of March 2001), there are 40,000 compliances by companies and the exchanges monitor 40,000 companies. It is just a waste of resources, as the terms are uniform across securities and across exchanges. These wastages can be avoided if the issuers of securities are asked to comply with a standard set of requirements with a third entity so that duplication/triplication of efforts in terms of processing of request for listing, signing of listing agreement, multiple compliances by companies and multiple monitoring by exchanges are avoided.

" Every exchange exercises powers of listing/denial of listing, suspending/ delisting of securities independently. As a result, a security not found suitable for listing on an exchange gets listed on a different exchange, as they follow different criteria for listing a security. It may be noted that though the criteria for listing of securities differ across exchanges, the compliance requirements are essentially same. A prospective issuer informally gets a feedback from an exchange if the latter would consider listing of his security favourably. If he does not get an encouraging response, he tries his luck with other lenient exchanges. This creates an anomalous situation that a security, which is not suitable for investors in one locality, is suitable for investors in another locality. A security should either be suitable for listing on all exchanges or not suitable at all for listing on any exchange, that is, it should be suitable for all investors or not for any. Similarly, securities can be delisted by the company from all exchanges except the regional exchange. This means that the investors living in the locality of the regional exchange are closer than those living in other locations to the hearts of regulators. Thus we have an anomalous situation where an exchange lists/suspends/delists a particular security, while other exchanges do not do so. This anomaly came up for consideration before the Securities Appellate Tribunal (SAT) in an appeal (Lunkad Media and Entertainment Limited Vs. The Stock Exchange, Mumbai). In order to take care of such anomalies, the SAT suggested government and SEBI to consider the feasibility of providing a centralised mechanism to grant listing of securities on the stock exchanges. It felt that some sort of uniformity in deciding application for listing by exchanges would be in the interest of investors. It observed: “It does not stand to reason that a public issue found unacceptable by one exchange for the reason that the issuer company’s credibility is doubtful, is acceptable to another exchange, though both the exchanges are supposed to be concerned about the interests of the investors. Investor protection measures should not be confined to territorial jurisdiction of exchanges. It should be at national level. Decision by a centralised set up may perhaps help to provide transparency and also help to maintain consistency and uniformity in the field of listing.”

"In view of the foregoing, it is desirable that there is only one agency which considers all requests for listing and grants listing if it finds a security suitable for investors across the country. A security granted listing by the agency would be available for trading on all exchanges who will not waste resources in terms of duplication of efforts on listing and monitoring compliance. The security should also be monitored, and suspended and withdrawn from trading centrally by the listing agency. All the decisions of the agency relating to listing, suspension from trading, delisting etc. should be appellable to SAT. The investors and market participants would get all the company related information, which are mandatorily required to be filed by companies, at one central location preferably a web site maintained by the CLA. The exchanges should concentrate on trading only while pre-trading activity (listing and compliance of terms of listing) is managed by CLA and post trading activity (clearing and settlement of trades) is managed by clearing corporations. The CLA should be another intermediary like clearing corporation or depository and subject to regulatory discipline of SEBI."

Endorsing this view Government approved the establishment of a Central Listing Authority and SEBI promulgated the Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003 on 21st August, 2003 To help bring in uniformity in bourse listing process for corporates. The Securities and Exchange Board of India (SEBI) has constituted a nine-member committee of the CLA headed by former Chief Justice of India Justice M N Venketachelliah. Located in Mumbai, CLA will henceforth process the applications for public offers of shares from corporates, mutual fund and also for collective investment schemes and make recommendation for listing to the stock exchanges. CLA has been set up to bring about the uniformity in the due diligence process in scrutinising listing applications across the stock exchanges. It is to act as a single nodal agency responsible for ensuring quality of listings, continued compliance, timely dissemination of information and action against erring companies. After getting a CLA approval, the company can apply to any other exchange for listing, Henceforth, no listing on stock exchanges would be allowed unless it is accompanied by a recommendation letter from CLA, which has been established under Regulation 3 of the SEBI Central Listing Regulation, 2003.

Besides the principal function of receiving and processing applications for "letter precedent to listing", the CLA can now specifically make suggestions on investor protection, development and regulation of the securities market, including listing agreements, listing conditions and disclosures to be made in offer documents.

As per the regulations on CLA, a merchant banker can, on behalf of a company, mutual fund or collective investment scheme, approach the authority to apply for a "letter precedent to listing". A "letter precedent to listing" means a letter issued by CLA to permit the applicant to make a listing application to any exchange, including for re-listing and listing of an already listed security at an exchange other than the exchange where it is currently listed.

The regulations specify that at least three members should be representatives of exchanges in the 11-member authority (including the President and Vice-President). The regulations also provide that a CLA can, in consultation with SEBI board, appoint a Chief Executive Officer, who will be the ex-officio member-secretary of the authority. A member of CLA can also be a CEO of the authority. The CLA will prescribe the functions of CEO. Further, the regulations now provide that an order passed by the authority declining to grant or even withdrawing a "letter precedent to listing" would be deemed to be an order of the SEBI board. Appeal against such order would now lie with the Securities Appellate Tribunal (SAT).

In the following articles we will study more about the structure and functions of the Central Listing Authority as envisaged under the Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003