Mumbai: This year will be a significant one in the history of Indian stock exchanges not only because it marked the entry of leading foreign exchanges such as the New York Stock Exchange, Deutsche Borse and the Singapore Stock Exchange as strategic partners to the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), but also because it will be the year in which most, if not all, 23 regional exchanges in the country will cease to exist, at least as stock exchanges.
Most exchanges are struggling to meet the stock market regulator, Securities and Exchange Board of India’s (Sebi) deadline to demutualize or reduce broker-members’ shareholding in them to below 49%, by various dates in 2007. Meanwhile, they are being valued by prospective buyers for the real-estate they own. Several hardly do business now, and the majority have not registered any trades in 2006.
A few stock exchanges do not even own any real-estate. The Gauhati Stock Exchange (GSE), set up sometime in the 1980s, operates from rented premises. GSE’s balance sheet shows fixed assets worth Rs7 lakh and hardly any cash. The exchange cannot meet Sebi’s deadline of 14 September. “We have asked Sebi to extend the deadline by three or four years. We are in no position to meet Sebi’s guidelines for corporatization, especially with regard to share capital,” says S.B. Medhi, the Sebi-appointed GSE administrator.
The bourse, like many other regional stock exchanges, is administered by Sebi appointees—mostly retired bureaucrats or economists—after their broker-elected boards were removed. If GSE doesn’t meet the deadline, and if it doesn’t get an extension, it will cease to exist as a stock exchange.
The Bhubaneshwar Stock Exchange (BhSE), also facing a 14 September deadline, is confident it will demutualize before that. “Many institutions and corporates have shown interest in picking up the 51% stake,” says Vivekananda Patnaik, BhSE administrator. But he is not sure how it will survive as a stock exchange. BhSE recorded no trades in 2006. “How to revive the stock exchange is a question that concerns us. We can make an effort by diversifying into trading government bonds and other instruments,” Patnaik says. But the fact is that developing a secondary debt market is an issue even BSE and NSE have not been able to successfully address.
Investors in BhSE may be interested in its other assets. The exchange owns a one-acre plot at the fast-growing Chandrasekharpur area, where corporate giants such as Infosys Technologies and Nalco have offices. It is currently constructing a four-storey building on the plot and has plans to build another nine-storeyed structure on it.
There is growing demand for commercial space in Bhubaneswar, with most global mining companies having announced plans to set up base in Orissa. BhSE is also a shareholder member of BSE and holds shares worth about Rs5 crore in the premier exchange.
The Kanpur-based Uttar Pradesh Stock Exchange has a building in the city’s prime Civil Lines area, valued at Rs20 crore, plus a membership in BSE. The richest stock exchanges in terms of real estate holdings are the Delhi Stock Exchange, Calcutta Stock Exchange, Ahmedabad Stock Exchange and the Madras Stock Exchange.
The only exchange, other than NSE and BSE, which has a positive cash flow is the Interconnected Stock Exchanges of India (ISE) that was formed in 2000 by 13 regional stock exchanges. Its brokerage subsidiary , ISE Securities and Services, is a very profitable venture that accounts for nearly 2% of the total volume of shares traded on BSE and NSE. Brokers from the member stock exchanges route their trades in NSE and BSE through the brokerage subsidiary.
Only six regional stock exchanges reported any trade at all in 2005-06. Calcutta Stock Exchange led this group with a turnover of Rs 2,800 crore, followed by Uttar Pradesh Stock Exchange at Rs 1,486 crore, Magadh (Patna) Stock Exchange with Rs 91 crore, Hyderabad Stock Exchange with Rs 89 crore, Madras Stock Exchange with Rs 5 crore and Over the Counter Exchange of India (OTCEI) with Rs 0.01 crore.