Regional stock exchanges (RSEs) may get a lifeline from the regulator. The Securities and Exchange Board of India (Sebi) has asked RSEs to submit a road-map of how they plan to reach the Rs 100 crore net worth, which is mandatory for stock exchanges. Sources say, Sebi may allow RSEs to start operations if the plan submitted by RSEs was achievable in three years.
The Rs 100 crore net worth criteria set for an exchange to start operations was a major deterrent for RSEs to start operations. There are 16 RSEs in the country but only Calcutta Stock Exchange (CSE) is a active player and rest are defunct. Ahmedabad Stock Exchange (ASE) has revival plans and was looking to sell property that it has to achieve a Rs 100 crore net worth. ASE was in talks to merge Gujarat's Baroda Stock Exchange (BdSE) and Rajkot Stock Exchange (RjSE) with it. However, both BdSE and RjSE have delayed negotiations, said a exchange official from Gujarat.
Shareholders and members of RSEs had prepared for a legal battle against Sebi. They wanted to drag the capital markets regulator to court for stipulating stringent norms for RSEs after the de-mutualisation process, which they say is akin to a retrospective amendment and may lead to complete closure and winding up of operations.
Most RSEs are citing the Securities Contract and Regulation Act, according to which an RSE can be closed only if it is found acting against public or trade interest. Also, discussions between exchanges and the regulator are required in this context.
Among the criteria these exchanges disapprove of are the Rs 100-crore net worth requirement, the Rs 1,000-crore trading turnover and the five per cent cap on shareholding, except for a select category of shareholders.
Brokers’ association of the Uttar Pradesh Stock Exchange has written a letter to the finance minister, claiming Sebi’s norms to be favourable for the Bombay Stock Exchange ( BSE) and the National Stock Exchange ( NSE). According to a official from a private equity fund, which is a shareholder in one of the RSEs, said Sebi’s new norms were similar to money grab. “Why was the de-mutualisation process carried out before bringing in the new guidelines?” asked a member broker. In 2007, stock exchanges were de-mutualised and new shareholders were lured in to invest in these, with many a promise by the finance ministry.
The brokers association of the Uttar Pradesh Stock Exchange, in its letter, stated Sebi had ignored all the rules and regulations.
“There is a difference between national stock exchanges like the BSE and the NSE, and yet the same criteria for these were not acceptable,” said a Uttar Pradesh Stock Exchange shareholder. These 949 suspended companies on the BSE, with 8,978 crore of shares ranging from Rs 20 to Rs 500 (a total of about Rs 1.8 lakh crore) lost for investors. Investors have not been compensated from those investors’ protection and education funds.
The letter adds Sebi did not give enough support to RSEs; its move to grant permissions to both NSE and BSE to work in the region of RSEs, as well as its approval to brokers of these exchanges to establish/maintain their terminals, has hit the working of RSEs to a large extent. And, it also led to brokers of RSEs being forced to work on BSE and NSE terminals. UP brokers say Sebi was interested in suspended companies in which small investors had lost about Rs 1 lakh crore, but was keen on closing down RSEs which could favor national level exchanges.
The Uttar Pradesh Stock Exchange says it was due to this discrimination that it found difficulty in carrying out operations, though its turnover had crossed Rs 1,000 crore.
The five per cent cap on shareholding is another major roadblock for RSEs, say experts. According to experts, there are institutions that want to revive these exchanges. However, putting 100 per cent effort for a stake of only five per is not enough motivation.
