Regional bourses intensify consolidation effort

Madras and Bangalore stock exchanges negotiate on a possible combination

Ahead of the deadline set by the Securities and Exchange Board of India (Sebi) for closure of defunct stock exchanges, some regional stock exchanges (RSEs) have intensified efforts to consolidate, in a bid to stay afloat.

The Madras Stock Exchange (MSE) and Bangalore Stock Exchange (BGSE) are in advanced stages of discussion for a possible merger or consolidation, according to top officials there.

In April this year, Sebi had said an exchange without any trading platform or with annual trading less than Rs 1,000 crore should apply for voluntary derecognition and exit. It had also given three years to the exchanges to meet a minimum net worth of Rs 100 crore.

“We are in fairly advanced stages of discussion with the MSE for working together. We have not yet defined the terms of agreement; there would be a possible amalgamation or merger,” said Manjit Singh, executive director, BGSE.

Even after an amalgamation of the two, it would be difficult for the new entity to meet the criterion of Rs 100 crore as net worth; their combined value would be close to Rs 50 crore.

“We are in talks with the BGSE for consolidation. However, the entire process is based on some positive assumptions. We are hopeful of launching our own trading platform, which in turn will attract traders,” said V Balasubramoniam, secretary, MSE. The latter had recently applied to Sebi on the latter issue. To increase the trading volume, the exchanges are also vying to acquire members. According to rough estimates, there are 5,000-8,000 trading members registered on the 17 RSEs.

Recently, Calcutta Stock Exchange (CSE) floated a proposal with Sebi to create a new category of traders who wish to migrate to other RSEs, so that they can move to another exchange at a lower deposit amount. Notably, CSE, in which the Bombay Stock Exchange (BSE) has a five per cent stake, is the only regional exchange to be compliant with the new rule. None of the other exchanges have their own trading platforms and, hence, have nil trading.

Earlier, the Ahmedabad Stock Exchange had initiated a dialogue with two other West-based exchanges, the Baroda Stock Exchange and the Saurashtra Kutch Stock Exchange, for a possible merger of all three.

Ahmedabad Stock Exchange is planning to sell some of its immovable assets to enhance its net worth.

In recent days, almost all RSEs had adopted the subsidiary route, under which the exchange floats a subsidiary or an entity formed by its own members, which acquires the membership of a national exchange to stay afloat. Exchanges have been forging ties with the National Stock Exchange and the BSE through subsidiaries. Sebi had earlier said the members of a derecognised exchange could continue to avail of trading opportunities through an existing subsidiary company, which would function as a normal broking entity of a national exchange. With the new regulation, the tie-up plans have become redundant.