The Securities and Exchange Board of India (Sebi) is likely to bar foreign players from becoming strategic investors in domestic stock exchanges.

The Sebi board, scheduled to discuss and approve the guidelines for de-mutualisation of stock exchanges in Mumbai on Thursday, may allow a foreign player (including persons acting in concert, or PACs) to invest not more than 5 per cent in an exchange.

According to the de-mutualisation plan laid out by the government, all corporatised stock exchanges are expected to divest 51per cent of their equity to public investors. The internal group suggested that of the 51per cent to be divested, 25 per cent could be offered to an Indian strategic partner. The rest could be offered to others, including foreign players and resident Indian investors, with no investor holding over 5 per cent each.

Another option suggested by the group was to allow foreign players as strategic investors in the 25 per cent category, with a caveat that there would be at least two such players holding not less than 15 per cent and 10 per cent each. The remaining 26per cent may be held by other investors, with no investor -- along with PACs -- holding more than 5per cent each. This option allows for a minimum of eight investors holding 51per cent stake.

But, according to sources, there were few takers for the second option. Induction of a foreign strategic partner in SEs is a sensitive issue and can be opposed by various quarters, including the Left. The regulator might, therefore, adopt a safe and non-controversial approach, they said.