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Deeptha Rajkumar

To be in a better position to go public

Mumbai , Nov. 23

"There is a need for regional stock exchanges (RSEs) to consolidate, as it would not be viable for 19 exchanges to go to the market. If RSEs come together they would be in a better position to go public," said Mr V. Ramu Sharma, Chairman, Federation of Indian Stock Exchanges (FISE).

Speaking to Business Line, Mr Sharma said that it was time RSEs had a business model in place and kick-start the process as early as possible. Most RSEs are looking at a deadline of August 2007, by which time they would have to demutualise as per SEBI rules. The capital market regulator had, last week, approved the demutualisation schemes of 19 stock exchanges.

"Apart from NYSE, Nasdaq, there are many small exchanges in the US today. Their ability to survive lies in the unique products that each exchange offers. However, our regional exchanges offer similar products as is available with the two large exchanges — BSE, NSE— with national reach. It is imperative that the smaller exchanges come up with an apt business model with unique products to succeed," he said.

Mr Sharma said regional exchanges could look at two options while putting together a viable business model. One, they could explore the possibility of being the extension arms of BSE and NSE. Or else, they could come together to form a separate trading platform for small and medium enterprises. "The latter would be more of a market development effort. The SME platform should not be at the cost of access to the larger market," he said.

Bourses sign MoU

To this extent, nine exchanges have come together and signed an MoU with the National Stock Exchange seeking to extend its trading platform onto the regional stock exchanges. The nine exchanges include, Interconnected Stock Exchange of India , Ahmedabad Stock Exchange, Ludhiana Stock Exchange, Madras Stock Exchange, Cochin Stock Exchange, Bangalore Stock Exchange and Calcutta Stock Exchange. The proposal is awaiting approval from SEBI. The RSEs are, however, pushing for access to both BSE and NSE's trading platform.

"What it essentially means is that a trading member of an RSE can trade either on NSE or BSE but issue a RSE contract. The benefit for the investor is that compliance and redressal becomes local. The RSEs standard of compliance will also go up. More importantly, the investors have dual protection in terms of security of the `local' stock exchanges trade guarantee fund in addition to say NSE/BSEs trade guarantee fund," said Mr Sharma.

Such a move is expected to benefit regional exchanges. The RSEs are also hopeful that the NSE/BSE would put in place a platform for trading in companies listed with the RSEs only, as they are predominantly small and medium companies.

If such a move were to fructify, regional exchanges could come together to fill in the void for trading in small and medium enterprises, the FISE Chairman said. "Today, we have many regional companies well spread out all over the country and they are compliant with the listing regulations too. However, for sheer want of trading in RSEs there is no trading in these companies. Hence, there is no price discovery in these companies and they are unable to realise their potential. We can fill this space and become dominant player in SMEs. But to do that, we also need BSE and NSE's support," Mr Sharma said.

BSE had launched its initiative BSE-IndoNext in January 2005 as a trading platform for mid- and small-cap companies. The venture was a joint effort of the BSE and FISE. Market men maintain that the initiative did not succeed primarily because the criterion laid down by BSE was rather rigid. Most of the small companies on IndoNext are B1, B2 companies initially listed on the BSE.

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