Caught between deep sea and RSE

Long long ago, when there were no computers, there were several stock exchanges across the country, almost one for every state. By the 2000s, as the country’s stock trade got dematerialised and national exchanges emerged, the role of these regional stock exchanges (RSEs) diminished considerably. As volumes plummeted, investors and companies were getting stuck, as the exchange managements and local brokers who typically were shareholders of these regional exchanges were not keen to let go the value in prime real estate which almost every such bourse was sitting on.

To break the deadlock and relieve these regional exchanges of their misery, the Securities and Exchange Board of India (Sebi) issued a circular on December 29, 2008. While it dangled the carrot of allowing the RSEs or their successor entities to keep their ‘fixed assets’, the circular added: “The companies listed in such derecognised RSEs and also listed in any other stock exchange(s) may continue to remain listed in the other stock exchange(s). In case of companies exclusively listed on those de-recognised stock exchanges, it shall be mandatory for such companies to either seek listing at other stock exchanges or provide for exit option to the shareholders as per Sebi Delisting Guidelines/Regulations after taking shareholders’ approval for the same, within a time frame, to be specified by Sebi, failing which the companies shall stand delisted through operation of law.”

In an operating exchange, the administration has levers to rein in companies not following the rules. What does a dead exchange with no trading have? Not much happened for the next few years.

In May 2012, Sebi set a definitive criterion of Rs 1,000 crore annual trading turnover. It gave two years for exchanges without this to exit voluntarily. Sebi would move for a compulsory exit, if they failed to apply. This circular introduced the concept of a dissemination board, a facility to be provided by national exchanges for price discovery. Any trade based on prices disseminated here would be settled off-market, as the safeguards of the exchange mechanism would not be available. It also advised the national bourses to create a framework of rules and infrastructure to accommodate these companies.

By the time the two-year-deadline expired in May 2014, only four – Hyderabad, Coimbatore, Saurashtra and Mangalore -- had exited. Sebi now moved for compulsory derecognition and exits. In a new circular, it said: “The exclusively listed companies, which fail to obtain listing on any other stock exchange, which do not voluntary delist or which are not considered as 'vanishing companies', will cease to be a listed company and will be moved to the dissemination board by the existing stock exchange.”

Several companies and investors represented that there was not enough time for exit and sought more time. Sebi, in April this year, gave an 18-month window to get more companies listed on national exchanges.

We are roughly at the middle of that 18-month window. Since January 2013, Sebi has allowed 17 regional exchanges to exit. Their website shows three others -- Ahmedabad, Delhi and Calcutta – continue to have permanent recognition.

Now, BSE, which so far has been the preferred platform for many of these RSE firms by listing 244 such entities from there, seems to be developing cold feet, leaving the investors in deep sea. Of thousands of companies in these bourses, only about 360 have migrated to the three national bourses through direct listing. As of date, BSE’s dissemination board shows 1,529 companies and the NSE had 373. That means despite seven years of rowing, the shore seems far away for Sebi, the exchanges and RSE investors.