In a significant move, that may change the way Indian capital markets look, both the Calcutta Stock Exchange (CSE) and the Delhi Stock Exchange (DSE) have signed a memorandum of understanding (MoU).
The MoU covers setting up of a common technical facility, same settlement cycles, reciprocal membership for brokers of the two exchanges and a common governing body.
President of CSE, Kamal Parekh, who resumed the top job of the local bourse yesterday, said both exchanges have signed an MoU to carry out a feasibility study for building up a "common trading engine."
Sources close to the development said the ambit of the feasibility study also covers the possibility of having same settlement cycles, offering cross-membership and also a common governing body for both the exchanges.
"Although the aim of MoU is reduction of technical cost by floating a common trading engine, it could be stretched beyond it for the benefit of both the bourses. After all, in the changed scenario of mergers and acquisitions, one cannot flourish by following the old mindset," sources said.
If the MoU bears fruit, it will create a formidable combine by having presence in both northern and eastern parts of the country. The combine, however, will still continue to be the third largest force in terms of turnover, after the National and Bombay stock exchanges.
However, no one is sure about just how a common governing body for both the bourses will actually work for the benefit of both bourses.
Nevertheless, it is certain that the combine will be "a strong force in the Indian capital markets with the political clout of DSE and the financial muscle of CSE."
Regarding the reciprocal membership, sources said CSE, as the country's third largest bourse, will float a subsidiary to get membership from the DSE, while the latter (the fourth largest exchange) will follow a similar route.
Sources said till the alliance becomes fully operational, both exchanges will be working according to an innovative arrangement that permits sharing of benefits, while protecting separate identities of both the bourses as well as following the permitted route of expansion by Securities and Exchange Board of India (Sebi).
According to the Sebi formula, an exchange can be a member of another only through a wholly-owned subsidiary. Although the CSE was a pioneer of floating the idea of inter-exchange membership, it has so far managed to get only four bourses on board. These are Bhubaneswar, Magadh, Uttar Pradesh and Ahmedabad exchanges.
BSE, which joined the fray later, has been able to attract smaller exchanges, more than CSE, by offering price reduction to the small exchanges. DSE has not been very successful in this area.
However, with the proposed "reciprocity of membership", both exchanges will upset the existing equation of inter-exchange membership. "After the deal, more small regional bourses can be expected to join the membership of the CSE-DSE family," said hopeful CSE members.
