The latest Securities and Exchange Board of India (Sebi) regulation on closure of defunct stock exchanges is pushing these to realign, firming merger plans, hastily filing proposals for own trading platforms and selling properties to rejuvenate their net worth.
Calcutta Stock Exchange (CSE), in which the Bombay Stock Exchange (BSE) has five per cent stake, is the only regional exchange to be compliant with the new rule. None of the other exchanges have their own trading platform and, hence, have nil trading.
CSE has already extended an open invitation to companies and members of other exchanges, for free migration to its trading platform. There are some 6,000 companies listed on regional exchanges.
The Madras Stock Exchange recently applied to set up its own trading platform. “This will generate the requisite turnover to stay afloat,” said sources at MSE. In April, Sebi had said an exchange without any trading platform or with annual trading less than Rs 1,000 crore should apply for voluntary derecognition and exit. It had also given three years to the exchanges to meet a minimum net worth of Rs 100 crore.
CSE, which works on a C-Star trading platform, with some 1,800 exclusively listed companies, had a trading volume of close to Rs 12,000 crore last year, said B Madhav Reddy, managing director and chief executive officer.
“For CSE, this is a blessing in disguise. We qualify for all the criteria spelt out by Sebi. At a recent meeting of the Federation of Indian Stock Exchanges, we mooted offering membership to any company and members, free of cost. We have put across the idea and discussions are on,” said Reddy.
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The Ahmedabad Stock Exchange has initiated a dialogue with two other west-based exchanges, the Baroda Stock Exchange and the Saurashtra Kutch Stock Exchange, for a possible merger of all three.
“Baroda and Saurashtra stock exchanges are welcome to merge with us. We will soon hold a meeting in this regard. We are planning to launch our own trading platform. For having Rs 100 crore net worth, we are planning to sell some of our assets,” said Hemantsingh Jhala, chairman.
The Bangalore Stock Exchange is also scouting for a merger. “We are talking to the Interconnected Stock Exchange of India, the Madras Stock Exchange, and also the Calcutta Stock Exchange. With the kind of net worth required under the new regulations, it is not possible for any one stock exchange to survive. There is a need for amalgamation of at least two to three exchanges,” said Manjit Singh, executive director.
In recent days, almost all regional exchanges had adopted the subsidiary route, under which the exchange floats a subsidiary or an entity formed by its own members, which acquires the membership of a national exchange to stay afloat.
Exchanges have been forging ties with the National Stock Exchange (NSE) and the BSE through subsidiaries. Sebi had earlier said members of a derecognised exchange could continue to avail of trading opportunities through its existing subsidiary company, which would function as a normal broking entity of a national exchange. With the new regulation, the tie-up plans have become redundant. “Earlier, we were talking to BSE and NSE for a Section 13 arrangement (trading platform tie-up), but now it is not possible,” said Singh.