Investors in limbo as regional exchanges shut down

Stock exchanges unable to ensure a networth of Rs 100 cr and a daily turnover of Rs 1,000 cr are de-recognised by Sebi

With regional stock exchanges pulling down shutters, investors with exposure to companies listed exclusively on such exchanges are in a fix. These firms, which have been moved to the dissemination board (DB) of the National Stock Exchange (NSE) or the BSE, have seen very little or no trading activity since being moved to DB resulting in a lack of exit for investors in such companies.  Currently, 274 companies make up the dissemination boards of both the BSE and the NSE. Companies in the DB are treated as unlisted companies.

“Trading in these companies is unlikely to pick up as there is very little interest among investors. Besides, exchanges are only supposed to provide a platform for dissemination of bids and offers for securities of these companies,” said a BSE official.

DB is a national exchange-arranged platform for companies of regional stock exchanges, which have been de-recognised or are on their way to voluntarily seeking de-recognition. Stock exchanges unable to ensure a net worth of Rs 100 crore and a daily turnover of Rs 1,000 crore are de-recognised by the Securities and Exchange Board of India (Sebi) for being unfit to conduct trading activities. “The exclusively listed companies, which fail to obtain listing on any other stock exchange, will cease to be a listed company and will be moved to the dissemination board by the exiting stock exchange. Therefore, in the interest of investors of exclusively listed companies, a mechanism of dissemination board will be set up by stock exchanges having nationwide trading terminals,” states the Sebi master circular for stock exchanges.  Buyers and sellers in securities of such companies can place orders through the DB, but such trades are settled outside the purview of the exchanges. Under Sebi regulations, exchanges are not accountable for the trades conducted on the DB. While the offers are placed through brokers of the exchange, it is essentially an off-the-exchange transaction and does not come under the exchange surveillance mechanism. As these companies are not recognised as being listed on the BSE or the NSE, their trades are not settled through the exchanges’ clearing corporations.

WHAT IS A DISSEMINATION BOARD?

• A dissemination board (DB) is a trading mechanism provided by national stock exchanges for trading in companies part of regional stock exchanges that have been de-recognised or are on their way to voluntary de-recognition
• Investors with exposure in companies of the DB are required to register with the broker members of such exchanges where the board is set up
• These members are provided with a facility for placing bids or offer requests for clients
• Trades conducted are not settled through the exchange platform and are directly concluded by the buyer and the seller
• Exchanges are in no way held accountable for the trades conducted and have no surveillance oversight on the bids and offers placed on the DB
• On NSE's DB there are about 180 companies while 94 companies comprise BSE's DB

According to analysts, such low levels of accountability in companies with already weak trading activity makes this platform very unattractive to investors. A lack of awareness about the DB among investors is another reason for low participation among investors.

Information on these companies is uploaded as and when such information is made available to the exchanges.

According to estimates, there are about 10 million retail investors with exposure to companies in the regional stock exchanges with a total investment size of about Rs 2 lakh crore.

Investor associations are concerned that the number of companies being added to the DB might go higher as more and more stock exchanges close down operations. Recently, the Gauhati and Bhubaneshwar stock exchanges were de-recognised by Sebi. Madras Stock Exchange, Bangalore Stock exchange, Kochi Stock exchange, Vadodara Stock Exchange, Hyderabad Stock Exchange and Inter-connected Stock Exchange are some of the regional stock exchanges that have shut shop.