It is comforting to note that the able, action- minded, new Chairman of SEBI, C. B. Bhave, has recently observed that the consultation process for setting up a separate exchange for small and medium enterprises (SMEs) will soon be over and that a decision in this behalf would be taken by the Board of SEBI thereafter.
It is, however, not clear as to the need for setting up a separate exchange for SMEs, particularly in the context that the Inter-Connected Stock Exchange of India (ISE) was specially set up in 1997 by 13 regional stock exchanges for trading specially in the securities of companies listed on these exchanges.
ISE did not succeed mainly because of lack of exclusivity in trading and the unwillingness of major operators of regional stock exchanges (RSEs) to shift even a part of their trading volumes to ISE. It was, therefore, left with no alternative but to float a subsidiary of its own viz. ISE Securities and Services (ISS), as most of the RSEs did, to enable its members to trade on NSE and BSE.
There are over 800 brokers spread across over 150 centres in 18 States and 2 Union Territories trading on NSE and BSE through ISS. Indonext was set up as a joint venture between BSE and RSES to activate trading in many of the B2 companies of BSE and tradeable securities of RSES. It was inaugurated by the Finance Minister in January 2005.
Indonext, however, did not succeed in providing any outlet for the companies listed on RSES, as only about 25 of them were accepted by the BSE due to apprehensions of manipulation in the prices of thinly traded securities.
Irrespective of whether or not ISE would be chosen to act as an exchange for SMEs, nine of the RSES located at Cochin, Chennai, Bangalore, Bhubaneshwar, Guwahati, Patna, Kanpur, Indore and Jaipur, have already given an order for upgrading the technology to usher in a state of the art linkage among these RSES at a cost of Rs 12 crore and the same is expected to be ready in another three to four months time.
There are about 3,000 companies exclusively listed on these nine RSEs out of which about 500 of them are fully compliant with all the regulatory requirements, and most of them are profit making and dividend distributing companies.
These are waiting for a market to provide entry and exit routes for the investors. Once the platform is set up, it is quite possible that some of the remaining RSES, including Calcutta Stock Exchange, Ludhiana Stock Exchange etc, may also join ISE.
Over and above the RSES, there is the OTC Exchange of India (OTCEI), which was set up way back in 1992 exclusively for small
