Accecs to the retail network, presence of localised grievance redressal cells and low entry costs are some of the strong points of the Inter Connected Stock Exchange (ICSE), says Joseph Massey, managing director, ICSE. In an interview with Santosh Nair, he says that with the improvement in liquidity, more players will be encouraged to join the exchange.
Volumes at the major bourses have been on the decline over the past few months, and many players have been moving out of the business. How do you see ICSE faring in such a gloomy scenario?
Boom and gloom are an integral part of any business. It is not as if the capital market, as a whole, has become unviable. Only certain players are finding the business unviable. Also, during any time of the year, only 50-60 per cent of the players actively trade on the exchanges.
Also Read
ICSE has been set up with a long term view. Currently, there are about 4000 members on the 15 regional stock exchanges(RSEs) out of which about 2000 members are active. Many RSE members have, over a period of time, shifted to various cities. As a result of these movements and due to technological constraints, some of these members have chosen to remain inactive. With the commencement of the ICSE, we expect these members also to become active.
Some of these regional exchanges are also planning to expand to neighbouring towns. This will improve the liquidity in the system which has been a cause of concern so far. And once that happens, more players will gradually join the ICSE. Though the infrastructure will not be used to its full capacity initially, things will change for the better.
Some of the RSEs have a delivery percentage of less than one per cent. How will the new exchange make any difference to delivery-based trading?
The delivery percentage on the various RSEs varies from 2-5 per cent. This is not a bad figure considering the fact that there is hardly any institutional activity in some of these regional exchanges. In comparison, over 90 per cent delivery-based transactions on the BSE and the NSE is courtesy the institutions.
Secondly, a lot of trades are being routed through the NSE and the BSE because of the illiquidity prevailing in many of the scrips. Once liquidity improves on the ICSE, we expect to recapture these trades.
Thirdly, we will be allowing subsidiaries of banks, financial institutions and corporate houses to become dealers on the ICSE. This again will improve the percentage of delivery-based trading on the exchange.
Volumes on the RSEs have not been very encouraging. What is your game plan to boost volumes?
Inter-RSE arbitrage business is one area which can result in good volumes. So far, there has not been an effective mechanism to address disputes in case of bad deliveries and other grievances. Hence, a lot of players were not very comfortable with inter-RSE arbitrage. ICSE will set up a grievance redressal cell near each of these regional exchanges. These cells will expand along with the expansion of the RSEs. This should encourage inter-RSE transactions. Secondly, there is a huge retail network waiting to be tapped which will eventually improve the volumes.
With so many members and different ideologies, there is a feeling that arriving at a consensus may be difficult on the ICSE.
I don't agree with this observation. The major policies such as risk management, compliance etc will be outlined by Sebi. So, there is no question of arriving at a consensus. Petty politicking usually arises when members on the board represent a small section of players as is the case with many exchanges where the board is dominated by brokers. ICSE will have a 20-member board out of which nine members will be public representatives. The chairman will be selected from the public representatives.