Company History & Background Asit C. Mehta Investment Interrmediates Ltd.

(ACMIIL) was established in the year 1986 with a view to offer a one stop solution to Indian entities for their needs in financial services. Over the last two decades it has achieved the distinction of being amongst the most trusted and reputed brokerage houses in India. It provides a complete bouquet of products in equity, debt, commodities, forex, depository, derivatives and allied services in India. The company is jointly promoted by noted stock market professionals, Mr. Asit C. Mehta and Mrs. Deena A. Mehta, and is a part of the Mumbai-based Nucleus Group of Companies. The other group companies are engaged in IT and IT related services such as development of databases, back-office applications for banks, corporate document management solutions and geographical information systems (GIS). Vision, Mission & Quality Envisioned to be the Trusted Financial Intermediary, the group has etched out a very specific corporate purpose To reach appropriate financial products, services and solutions to every Indian entity. Our Belief That every household can, should, and will need to participate in the financial markets directly or indirectly to protect their financial interests That regulatory/legal compliance ensures economic sustainability. That transparency and fairness are the cornerstones of all dealings. That knowledge rather than capital is the key driver of this business. That product, process, and technology led innovations are necessary preconditions for continuously adding value for all our constituents. That given the environment every person will realise her/ his potential. That people are driven by causes.

The FIRSTS to our credit: First limited liability Company to acquire membership on Bombay Stock Exchange. First multiple seat holder and multiple exchange members. First private VSAT network user. First to utilize the franchisee business model for sub-brokers. First to achieve the ISO quality certification for business processes. First to receive a CRISIL grading for quality of operations and services. Company Managing Director Mrs. Deena Mehta was the first lady to be elected to the governing board of the Stock Exchange Mumbai and first and only lady to be the President of Stock Exchange, Mumbai.

Service Standards & Compliance In order to institutionalize business processes, our company has moved to a documented customer-centric quality management system. This has ensured that the entire organization is driven by the common objective of delivering quality brokerage services that would create a unique brand and top-of-the-mind recall. We are the first brokerage house to be certified under ISO 9001:2000 for the Equity and Debt segments. We are also first stock brokerage house to be graded under the Broker Grading service by Credit Rating & Information Services of India Ltd. (CRISIL) for our quality of operations and services provided to clients. Our Services Equity and Derivatives Trading: Equity trading is offered to retail clients through different channels in the Bombay Stock Exchange (BSE) & the National Stock Exchange of India (NSE), for the cash and the derivatives segments.Investors are serviced through a PAN India network of over 650 associates / locations comprising of 585 franchisee and 65 company branches. (as on July 2009) Online Trading: Investmentz.com is our trading portal that offers online trading to retail investors in the BSE and NSE cash and derivatives segments. The investors can do their own trading through a browser-based interface as well as a streamer-based solution called Live eXchange. This service is also available through an Interactive Voice Response (IVR) facility for those clients who are unable to access the Internet service at any time. The company has tied up with leading nationalized, private and co-operative banks to offer share trading services to the banks' customers. A seamless gateway has been established between the banking and depository softwares of the bank.

Institutional Desk: Equity trade execution services are provided to institutional investors both domestic and FII by our institutional desk. Research and market information is provided to mutual funds and banks to support them in making investment decisions. These services are provided with seamless connectivity to custodians. Portfolio Advisory Service: ACMIIL holds a portfolio management license issued by SEBI. It service is available to Resident Indian and Non-Resident India (NRI), for managing their equity & mutual fund portfolio. Investment Banking: ACMIIL has been granted a Category I Merchant Banking license by SEBI. It offers services in mergers, amalgamations, private equity, public offerings and a full gamut of investment banking services. Commodity trading service are provided through our associate, Asit C. Mehta Commodity Services Pvt. Ltd. The company is member of Indias premier commodity exchanges, namely, the Multi Commodity Exchange of India Ltd. (MCX), the National Commodity & Derivatives Exchange, India (NCDEX) and the East India Cotton Exchange Association (EICA). The online trading portal also provides facility to trade on NCDEX. One of the group company is a member of Dubai Gold & Commodity Exchange (DGCX). Mutual Fund and IPO distribution service are provided to retail investors directly and indirectly through our Branch/Business Associate network. Seminars are conducted regularly to highlight the importance of investment in mutual funds, especially through Systemic Income Plans (SIP). Advice is provided on initial public offerings and only public issues that have merit are marketed to retail investors. Debt Market Desk: We are members of the Wholesale Debt Market (WDM) segment of the National Stock Exchange of India (NSE). The service involves providing quotes and executing trades in government securities (GSec), treasury bills and other state-guaranteed bonds. We are empaneled with most nationalized, foreign, private and major co-operative banks. We are also empaneled with most primary dealers, mutual funds, insurance companies and institutions for trading in debt market instruments. Inter-bank Forex Desk: Our associate company, Asit C Mehta Forex Pvt. Ltd., undertakes inter-bank forex order execution. Accredited by the Foreign Exchange Dealers Association of India (FEDAI), the company is empaneled with approximately 60 banks and has a reasonable presence in the market. Depository services are provided to investors. The company is a depository participant with the Central Depository Service of India Ltd. (CDSL). We are also authorized to provide depository services for commodity trades.

Support Services Research: Investors are provided with extensive information on markets and companies through hourly market reviews, periodic market commentary and recommendations, which enable them to make informed decisions. The company firmly believes that providing continuous and accurate decision making tools can add substantial value to its investors. Advisory services are provided as a value-added service to all retail and institutional clients. This service is delivered through the hourly, daily, weekly, fortnightly and monthly publication of fundamental and technical research. Calls are made through broadcast services on our private VSAT network, SMS and e-mail. Accounts information to the retail clients is provided through access on our website. This assists clients in knowing details about their trading accounts and their resultant obligations through various reports like Bill, Contract, Financial Ledger, Transaction Register, Stock Register, Portfolio Tracker, Stock holding position, etc. Econtracts are generated for investors giving trade details.

Potential Growth Areas India is amongst the least affected countries in the 2008 global meltdown. May 2009 general election in the country provided a fairly stable government. We see great potential for the country in general and financial market in particular in the years to come. Investor participation, product innovations, volume growth is likely to be in exponential proportion. Our company is well poised to build a great institution in India to service the Indian and global investors for their financial services needs. The company has created a strong organization driven by processes to handle multifold volume growth. Address: Asit C Mehta Investment Interrmediates Ltd. Nucleus House, Saki Vihar Road, Andheri (E), Mumbai 400 072. India. Call: 91-22-28583333. Fax: 91-22-28577647. Email: acmill@acm.co.in SEBI Registration No: BSE CM: INB 010607233 & Derivatives: INF 010607233 NSE CM: INB 230607239 & Derivatives: INF 230607239 & WDM: INB 230607239 PMS: INP000001920

Merchant Banking: INM000010973 Depository (CM & Derivatives): IN-DP-CDSL-28-99

Management: Chief Executive Officer : Mrs. Deena Asit Mehta Whole-time Director : Mr. Kirit H Vora Membership Cash Market: BSE, NSE Derivatives: BSE, NSE Debt: NSE Foreign Exchange: Accredited by FEDAI PMS under SEBI License Merchant Banking: Approved by SEBI under Category I Commodities: NCDEX MCX, DGCX, EAST INDIA COTTON Depository: CDSL

Clearing Bank: State Bank of India Reach and Access (as on Dec 31, 2010) Investment Centres 665 (branches, franchisee, etc.) States & UT covered 26 Employees 918 Products and Services 1. Equity Initial Public Offering (IPO) 2. Equity Secondary trading (cash and derivative) 3. Equity PMS 4. Equity Online Trading 5. Equity Depository Services 6. Equity Investment Advisory (fundamental and technical) 7. Equity Mutual Fund 8. Equity - Arbitrage 9. Commodity - Derivatives 10. Debt Government Securities 11. Debt Primary Placements 12. Debt Advisory 13. Debt Mutual Funds 14. Debt Relief bonds, etc. 15. Forex Interbank broking 16. Merchant Banking Amalgamation & Mergers 17. Merchant Banking Private Equity Merchant Banking Public Offering

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Comments on BR Jalan Committee Report

Comments on BR Jalan Committee Report

The BR Jalan Committee Report on Market Infrastructure is out and unfortunately, what should have been totally a Path Breaking deliverance appears to be damp squib. The report sidelines the main issues relevant today such as Corporate Governance, absence of developmental role to be played by the exchanges and the business that the exchange needs to be in considering its role as an important institution to channelize savings into investments to achieve double digit growth on a sustained basis. The report is also very tame in taking an outright stand that stock exchanges are service utilities and goes in a roundabout manner while saying so. An in depth analysis of the recommendations of the report are given below:

Ownership:

Stock Exchanges:

Currently, the Ownership of the Exchanges is restricted to 5% of the shares being held by a single entity. Stock Exchanges, Depository and Clearing Corporation are allowed to hold 15% collectively and the existing trading member holding is restricted to 49%. Persons residing out of India i.e. under FDI & FII route are allowed to hold 49% cumulatively and which is further sub divided into 26% to FDI route and 23% to FII route. These regulations envisage listing of shares of MIIs on Designated Stock Exchange.

The report introduces the concept of Anchor Institutional Investors which includes Public Financial Institutions and Banking Companies having a net worth exceeding Rs. 1,000 Crores. This class of investors is permitted to hold additional 9% of shares which need to be reduced after a period of 3 years.

Currently, the Depositories and Clearing Corporations are permitted to hold shares in another MII. The committee recommends that such holdings should not be permitted since the Clearing Corporations and Depositories should function as Public Utilities and focus on improving safety of markets and reduction of costs. There is no mention of the Stock Exchanges also functioning as Public Utilities.

The report offers no guidance as to how 49% of shares held by trading members would be treated in the future scheme of things. There is no place for trading members holding shares in the model proposed for restrictions in share holding. There is no transition plan made available for migrating to the model holding proposed by the report.

The report also talks about desirability of encouraging wide spread ownership encompassing both institutional and retail investors. The committee is also of the opinion that dispersed ownership is to be favoured for well functioning of Stock Exchanges. In absence of listing it is difficult to comprehend how the retail investors will purchase shares and whether the price integrity will be ensured, not to mention liquidity problems.

The entire stock market infrastructure has been created from broker funds. The BSE had on its balance sheet funds from broker membership and income from margin money collected by exchange and non- payment of interest thereon. In case of NSE also the capital was just 25 crorers. The entire infrastructure of NSE was created from broker deposits and today also the exchanges earn from treasury income of the margins given by brokers. Apathy to brokers owning shares in stock exchange is mis- placed.

Clearing Corporations:

The committee has recommended that 51% of the paid up capital of the Clearing Corporation should be held by one or more recognized Stock Exchanges. In the Ownership section, the committee talks of Clearing Corporations and Depositories being the Public Utilities which would ensure that the costs are very low and hence serve the commercial objectives of the users of the system and not the shareholders.

It would be more apt to have banks and public financial institutions promote these Clearing Corporations since these are essentially development organizations and managing money is their business. In fact, in past, there have been discussions on Clearing Corporation being permitted to have a limited banking license to move money efficiently. There should be one clearing corporation for the entire market ( across exchanges) which would ensure optimum utilization of collaterals through cross margin.

Depositories:

The committee has recommended that the holding of Stock Exchanges in depository may be restricted to 24%. The report itself has talked about vertical silos wherein the entire settlement and post trade services have been clubbed under Post Trade services. Depository Service is part of Clearing and Settlement only. This is not true as depositories also hold on to the securities unlike the Clearing corporations. The risks are different. The Clearing Corporation moves the money and the Depository settles the Securities. If nature of both these entities is Post Trade service and keeping the cost low is in interest of the general trade, why should Depository Ownership be different? Another reason cited in the report is that both the Stock Exchange as well as Depository performs surveillance function and one surveillance mechanism is not desirable to be in control of another surveillance mechanism. Clearing corporation also performs surveillance function. This report appears to be discriminatory on this issue of depository share holding.

The committee has recommended that all exposures need to be counted while calculating the shareholding limits. The committee felt that participation of a shareholder to other means as creditor or holder of other instruments issued by MII should be considered for the purpose of limits. The committees objective is laudable but it again appears to be biased. It is a very well known fact that large number of QIB, FCB and such other placements in companies are done with buyback arrangements and if SEBI really wants to apply this principle then a huge aberration and turmoil in the market will happen like it did in the case of pledge shares. Nevertheless,the principle is correct that there should be no backdoor entry as a creditor etc.

Governance Norms:

The committee believes that trading members on the board of members are privy to confidential information. The bye laws and rules prior to demutualization gave the entire management powers to the President and the Governing board of the exchange since the exchanges were trade bodies and the mass participation of public in exchanges was not visualized. Post demutualization the exchange has two broad functions that of running it as a commercial entity and second is that of a regulatory body. These two functions are clearly distinguished and the matters that come before the board essentially concern the business aspects of the exchange. Hence, there being a conflict of interest between the regulator and a regulatee is totally misplaced. Secondly, if any action is taken by the exchange on a member, then such member is not permitted to be a member of the board on the exchange. There is therefore no case to state that no trading or clearing member should be permitted to be a member of the board of the exchange. It is outrageous to put the professional ethics of independent directors and exchange management above that of trading members. Integrity is a personal trait. In fact, the independent directors and stock exchange management are privy to lot of insider information such as surveillance reports etc. which can be personally used by them for their own trading purpose.

Brokers are the channel which is used by the exchanges to market and deliver its services. They are closest to the investors and hence serve as eyes and ears of the Exchanges .The committee feels that trading members with their rich experience should be utilized by the exchange and advisory committee should be set up to take the guidance of these members. It is my personal experience that the professional management hardly brings anything before the Advisory Committees and decisions are taken in most ad-hoc manner. Advisory committee is only used as rubber stamp as and when it suits the management of the exchange.

This brings us to the issue of Corporate Governance which has not been at all addressed by the committee report. The entire decision of changing the market timings had been taken in a very ad hoc manner and the entire power of the exchange has been concentrated only in the hands of chief executive officer and a handful of top managers. The powers of top management of exchanges are unfettered and more often than not , the board is expected to endorse every thing put before it. The report is silent on such issues. It would be advisable to study the minutes of the stock exchanges before such recommendation is made.

Favouring large brokers is another danger that the capital markets face post demutualization. US is battling with black pools where select trade related information is made available to a handful of commercially important members. The report could have looked into these dangers of commercial interest vs compromising the integrity of the system.

Compensation of Key Management Personnel:

The report envisages that the Key Executives will not have any variable component in their remuneration. The report states that the remuneration should be determined after giving due regard to the industry standards for the same. If we go by industry standards, most of the corporate world have fixed as well as a variable component. In fact, all high paid executives do have a large variable component so that the burden of the salary on the organization is not very high and some minimum performance is assured. In case of Stock Exchanges NSE has a fixed remuneration package whereas BSE has a fixed cum variable remuneration package. The reasons are obvious. The BSE top management team was taken at a time where it was necessary to get high class performance to increase the BSE market share. The top management on the NSE on the other hand has grown with the organization and though there would be challenges, the pressures to revive a sagging exchange were different. There is no reason given by the committee on why the variable component should not be there. Sticking to a particular model indicates bias more so when the reasons of such recommendation is contrary to its own views on market salaries.

Listing of Exchanges:

The committee has raised the issue of the conflict arising out of self listing of shares. Instead of giving a solution to the same such as monitoring by SEBI or a separate cell within the exchange to monitor the listing norms, it has recommended that listing is not advisable. Another bizarre comparison to state that the share price of the exchange would impact the credibility of the exchange. I am sure the buyers of Colgate toothpaste are least bothered about share prices of Colgate. Everybody who is connected with the Stock Market understands that the price of the stock has no connection with the credibility of an organization but it has more to do with the demand supply of shares in the short term and financial performance and thereby its credibility in the long term. The government is pushing very hard to promote financial inclusion and make available the prosperity of share market to all Indian Citizens. A statement of this kind is very saddening. This implies a general impression that most companies in the country are vehicles of speculating investments.

The committee does not address the issue of current shareholders of the Stock Exchanges whose exit route has been sealed by its recommendations if accepted. It was always envisaged that there would be listing of exchange shares and BSE delayed filing of prospectus due to the setting up of this committee. The modalities of listings are necessary rather than questioning the very idea of listing. Question is how and where to list and not whether to list.

MIIs to generate only reasonable profit:

The committee recommends that there should be a cap to put on profitability of the exchanges. Any profit earned over and above the prescribed return on net worth shall be transferred to IPS or SGS as the case may be. If we analyze the profitability of the exchanges and clearing corporations, they are essentially from three sources, one being the transaction charge, penalty collected from members, and last being income earned on treasury operations of the funds deposited by brokers as margins. Hence, pragmatically speaking the committee should have recommended payment of interest on the brokers funds and reduction in transaction charges. Transferring the funds to another IPF or SGF fund serves nobodys purpose since there have been no broker defaults in recent times and investor claims are hardly made to the IPF. In absence of default again the SGF fund is hardly used. Hence there will only be further interest accumulation to these funds. It would be more advisable to reduce the cost of the transaction which is interest of every investor. Our markets are also over margined and due to general ignorance of the risk associated with the stock markets, exchanges have got away with excessive margining. There is a strong case to rationalize the margin structures. Reduction in transaction charges, payment of interest on margins and rationalization of margins, will automatically cap the exchange profits.

Powers to SEBI in matters relating to MIIs:

The committee is of the view that SEBI should have the discretion to limit the numbers of MIIs operating in the market, in the interest of the market and in public interest. Instead of limiting the MIIs, it would be more desirable to set up countrywide investor participation benchmarks and permit exchanges once the benchmarks are reached. For example, another depository can come up when the combined beneficial owners of the current depositories are say 5 Crores. This would link the infrastructure to the demand in the economy. To sum up instead of putting discretion with SEBI, it is desirable to have performance benchmarks so that basic principles of equity and democracy are prevailed upon. There should also be a provision to close the MII by SEBI in event they fail to reach minimum benchmarks in terms of membership, turnover etc. This would ensure that price wars etc. indulged into by new exchanges are not just entry strategies but a long term strategy for survival is in place. Such a condition will in fact accentuate the price war as there is a time limit to achieve the benchmarks!

There is an opinion that every entity interested in setting up an exchange should be allowed to do so. Let the market forces decide whether the exchange should continue operation. Unfortunately our markets lack depth in terms of number of participants who use exchange services. Competing on price only leads to attracting speculators who are extremely cost conscious. Wastages in terms of computer systems, networks office buildings etc is evident in the regional exchanges. Inter connected exchange was promoted by all regional exchanges to trade on BSE and NSE and then they directly become members of BSE and NSE through their subsidiaries. The infrastructure was wasted. Now ISE is trying to survive like any other broking house.

To conclude, all issues arising from demutualization and regulation of MIIs should have been addressed before allowing Stock Exchanges to demutualise. Nonetheless the delay in this insight should have taken us forward on the path of more regulated exchanges. Unfortunately, the report is a non starter and in fact, regressive in the ideas. It appears biased in favour of a particular exchange and does not address the countrys problem. It is not bold in taking a stand that exchanges are utilities. Half hearted attempts at restricting top management remuneration, cap on income and not listing the shares is a feeble attempt to give the colour of socialism to the

exchanges. Socialism per se is not bad! A bold stand is required to call the exchanges as public utilities and bring down the cost of transaction and spend money on the development and penetration of the capital market throughout the country.

Deena Mehta Managing Director Asit C. Mehta Invetsment Interrmediates Ltd. 16th December 2010