UP bourse plans to sell 51% to non-trading members

The Uttar Pradesh Stock (UPSE) Exchange is trying a novel approach, which is selling its 51 per cent equity to non-trading members, to conform to the demutualisation rules of the Securities and Exchange Board of India (Sebi).

Bourse Administrator KD Gupta told Business Standard for exchanges like the UPSE, it was unlikely that the general investor or some investor would be interested in picking up the 51 per cent equity of the exchange.

Only the Bombay Stock Exchange (BSE) is in a position to sell its 51 per cent equity and it is planning to sell about 20 per cent of this to a foreign investor and the rest to resident Indians.

It has also proposed a dividend of 1,032 per cent for 2006. Although the UPSE is making profits now, it's still doubtful whether any investor will invest in the 51 per cent equity.

The exchange is now trying to persuade the non-active members to surrender their trading rights and retain their membership in the exchange. If they succeed, there will be no problem because they will become the owners of the 51 per cent equity.

Gupta said this looked feasible because of about 500 members, only 125 were active members. The rest could be persuaded.

According to the annual report of the UPSE for 2005-2006, as on March 31, 2006, of 540 members, 11 had died, 58 were defaulters, one was expelled and 35 had resigned and significantly, of these 70 were only shareholders. And the rest of the 365 were normal members.

Gupta said the goal should be achieved, especially since the bourse had time till August next year.

The UPSE's turnover is showing a sharp decline. In 2005-06 total securities traded (two-way) were worth Rs 2,972 crore (previous year's figure Rs 10,686 crore). The average daily turnover was Rs 12 crore (previous year's figure Rs 42.20 crore).

The turnover of UPSE-floated UPSE Securities Ltd, which is a sub-broker of the BSE, is a little higher at about Rs 10 crore a day.

Other regional stock exchanges have become part of the BSE at a fee of Rs 10 crore, but the UPSE refused to pay this amount and preferred to trade as an independent entity.

However, it is looking forward to taking up the membership of the National Stock Exchange, which will cost it Rs 4 crore. Vivek Saran, a senior broker, said there was no trading without derivative trading.

The bourse wants other avenues to increase its income. It is toying with the idea of starting its own depository.