ISE sees a future for itself

Anantharaman report boosts prospects for alternate small exchange.

As the Anantharaman Committee recommends the forcible closure or amalgamation of regional stock exchanges, the long sought-after 'alternative platform' for small companies to raise capital from the public may finally become a reality.

After many a false start during the last decade, the recommendations are likely to open a new avenue for small and medium companies, most of which do not meet the IPO requirements on the only two active markets "� the BSE and the NSE "� due to their small size.

"The biggest problem with the earlier approaches seems to be getting fixed," said V Shankar, MD, Interconnected Stock Exchange of India (ISE)"� the result of the first failed 'experiment' to develop an 'SME exchange' eight years ago.

Earlier, while it was optional for brokers of these exchanges to place their orders on the common network, according to the new recommendations, there will only be one common, networked order-book.

According to the Committee's findings, around 500 of the 4,000 regional companies, which are listed only on the regional exchanges, meet all the legal requirements for remaining listed.

According to it, trading can be re-started in the shares of these companies if the order-books of individual companies are put together to provide liquidity.

"The biggest problem till now has been that orders were getting divided between the non-networked platform of the regional exchange and the networked portion, driving down the volumes and liquidity," Shankar said.

The Interconnected Exchange, which survives mainly through its broking subsidiary that trades on the NSE, has already set the ball rolling to make sure it will be chosen by the regional exchanges and the Sebi as the future 'SME exchange' of India.

Pitting itself against the BSE, which also unsuccessfully launched an 'experimental' platform for small companies, it is already learnt to be "educating" both the exchanges and the regulator of choosing its platform.

It points out that while its main problem "� lack of liquidity due to the low volumes "� is likely to be fixed after the abolition of dual order-book system, it is freer to concentrate on any such future

'SME exchange' as its core business. The Sebi committee had blamed "the reluctance on the part of the BSE to dilute its entry norms and the eligibility criteria" as the main reason for the failure of the second attempt at forming a national SME exchange.

"The trading practice for small-cap companies, which have a lower number of shares and large, high-volume companies, are different including the execution systems. If any exchange has to cater to both large-cap and small-cap companies, the balance will veer towards the requirements of the larger ones," Shankar said.