The Telegraph
Since 1st March, 1999
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Regional bourses chart fresh survival strategy

Calcutta, May 7: A section of senior brokers and leading capital market experts have mooted a fresh survival plan for the regional stock exchanges.

The plan envisages regional bourses obtaining trading rights of the Bombay Stock Exchange (BSE) — the country’s second largest exchange (in terms of turnover).

G. N. Bajpai, the chairman of the Securities and Exchange Board of India (Sebi), will meet the proponents of the idea — which includes a former Sebi chief — on Tuesday, May 13. They say, the plan will materialise only if Sebi agrees to endorse it, and hence the meeting is crucial.

BSE — Asia’s oldest bourse — is fast losing grounds to the National Stock Exchange (NSE), and is trying to expand beyond Mumbai. It has said it could partner regional stock exchanges to gain a national footprint.

The BSE is, at present, going through the process of demutualisation, which is going to result in separation of trading rights and membership.

“If Sebi gives its nod to the plan, the regional bourses could obtain trading rights of BSE, but would not become members of the exchange,” clarifies a senior broker pushing for the plan’s approval.

If a regional exchange obtained the trading right of BSE, its members could trade on the country’s second largest bourse. The brokers from the regional bourses will not, however, become members of BSE or shareowners of the exchange.

Some regional bourses have, in the past, considered a full-scale merger with BSE. The process is complex as it involves evaluation of the assets of the exchanges.

Some exchanges have also considered creating a subsidiary and seeking through it, full-fledged membership of BSE, but neither of these plans had much success.

However, there was considerable resistance to such plans from within the regional exchanges until recently. The management of Calcutta Stock Exchange (CSE), for instance, would not let the bourse lose its independent status.

“Though it had agreed to seek membership of the derivatives platform of a larger exchange, the CSE authorities always maintained that its equity segment would remain independent,” recounts a former director of the exchange. Today, with a daily turnover of Rs 7.5 crore, “independence” has little meaning.

Members of the Calcutta Stock Exchange would support the new plan, but would the management of the exchange agree to it. “If Sebi endorses it, the exchange authorities do not have a choice. But now, most Lyons Range officials realise that the exchange cannot survive on its own,” says one of the proponents of the idea.

There is little doubt that brokers of the regional exchanges would welcome the new survival plan. Experts backing it — which includes a broker-director of BSE — say, it is a win-win proposition for both the regional bourses and BSE. There will be no resistance to this plan from BSE members, they claim.

If the plan goes through, the turnover of BSE would increase significantly. Its derivatives segment, too, could come to life. Whereas derivative instruments in excess of Rs 2,000 crore are traded on NSE everyday, BSE’s derivative segment registers a daily turnover of a few crores.

On the other hand, it would give brokers of the regional exchanges access to a more liquid trading platform. And for the beleaguered bourses that are already in the red, it would lead to significant reduction in costs as they would not have to maintain separate trading platforms.

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