CSE moves HC against Sebi's closure directive

Last November, Sebi had asked CSE to voluntarily exit from the status of a regional stock exchange, failing which it would be subjected to a compulsory exit scheme

The Calcutta Stock Exchange (CSE) has moved the high court here against the directive of the Securities and Exchange Board of India (Sebi) to close to down its operations.

In June 2015, Sebi turned down CSE's application for the extension of Managing Director and CEO B Madhav Reddy's term. Reddy had joined CSE in June 2011 and his three-year term had ended in June 2014. Last year, Sebi gave only a year's extension, as CSE was yet to comply with the regulatory norms. Sebi, however, had rejected pleas for further extension of Reddy's tenure. Reddy is currently the president of the exchange. The exchange had filed the case against Sebi in November last year.

Last November, Sebi had asked CSE to voluntarily exit from the status of a regional stock exchange (RSE), failing which it would be subjected to a compulsory exit scheme.

In 2012, Sebi came out with new norms for RSEs, under which they had to own a trading platform, with an annual trading of not less than Rs 1,000 crore. Besides, the minimum networth of the exchange was stipulated at Rs 100 crore.

CSE was the only RSE to conform to the norms on trading platform and networth, which impelled other RSEs to seek a tie-up with CSE. The exchange has its own trading platform, C-Star. So far, CSE has forged tie-ups with Madhya Pradesh, OTC Exchange of India, Ludhiana, Bengaluru and Uttar Pradesh stock exchanges.

In June 2102, Sebi came out with new regulatory norms on clearing corporations. Under these norms, all stock exchanges must have their own clearing corporation, or should tie up with a recognised clearing corporation. So far, CSE was executing trade through its in-house clearing mechanism. In April 2013, CSE had to suspend trading, as it failed to comply with the Stock Exchanges and Clearing Corporations Regulations, 2012.

However, soon after the new norms on clearing corporation, CSE signed a pact with Indian Clearing Corporation Limited (ICCL), a subsidiary of BSE. BSE holds nearly five per cent stake in CSE.

However, subsequent to signing an agreement in 2014, Sebi issued new norms for Core Settlement Guarantee Fund, Default Waterfall and Stress Test, aimed at enhancing the robustness of the present risk management system of the clearing corporations.

Before trading was suspended at CSE, its annual turnover was close to Rs 9,500 crore, with more than 700 brokers. About 2,200 companies are listed on CSE.

Earlier, the court had directed Sebi and CSE to amicably settle the issue. The next hearing will be held in December.