The Madras Stock Exchange (MSE) on Monday decided to end its 77-year-long journey as a regional stock exchange(RSE). In an extraordinary general meeting on Monday evening, many of the MSE’s members proposed the exchange close down. The proposal finally got shape when a special resolution to get the consent of shareholders to seek a voluntary exit from the Securities and Exchange Board of India’s (Sebi) exchange business was passed with an 85 per cent majority.
Sources close to the development said the whole process of transition would take a few years at least. In the meantime, the MSE would be looking at other businesses such as financial services for survival.
While the MSE managed to survive this far, other RSEs, including at Coimbatore, Bangalore (exited last October), Mangalore, Kochi and Hyderabad have exited at different times earlier. The MSE’s Managing Director K N Ramanath and other officials were not available for comment. Insiders said while prospects for the exchange to survive were “very good”, Sebi’s norms had “forced” them to finally seek to exit from the business.
Sebi, which once argued that RSEs were key to the economy, is now “blamed” for their exits.
When the now-closed Coimbatore Stock Exchange (CSX) wanted to exit in 2006, Sebi objected to it in the Madras High Court and argued that “.....according to the respondent (Sebi), there is no provision for voluntary surrender because the role of a stock exchange is complex and involves various members, market participants, investors, companies, etc. and is also interlinked with other exchanges, national economy and global participation and therefore, the contention of CSX that being a company, it is its prerogative to wind up and surrender the recognition at its will and pleasure cannot be sustained.” A copy of the 2006 order is available with Business Standard.
Insiders argue that the the MSE can comply with Sebi norms. For instance, the turnover is easily achievable, thanks to the strong membership base.
On an average, the MSE can do trading volumes of Rs 1,000 crore per annum, once the trading platform goes full stream. It might be noted that according to the Section 13 arrangement with the NSE, the collective turnover of MSE-listed companies which were trading on the NSE platform in 2012-13 was Rs 8,000 crore and this was expected to increase to Rs 19,907 crore in 2017-18.
Earlier, senior officials from the MSE said the exchange faced three major challenges -- upgradation of technology which is getting fast outdated, marketing and expansion and meeting Sebi’s mandate. To meet these challenges, the exchange can raise Rs 100 crore from private equity or through a private placement.
The exchange is said to have an in-principle tie-up with NSE’s subsidiary, National Security Clearing Corporation Limited for clearing and trading operations and the expression of interest received from companies listed with the MSE to trade on the new platform.
The collective trading volume of the 60 companies which were listed on the MSE in the last five years and were allowed to trade on the NSE is estimated to be around Rs 25,000 crore. The listed companies include well-managed companies like TTK Healthcare, Amrutanjan, Lakshmi Mills and others.
The first big question is what would happen to the 200 exclusively-listed companies and to their investors, how companies would fund their plans and raise money, either from the investors or debt considering price discovery would not happen. Experts argued that these companies could not be listed in national exchanges, since their equity size and market capitalisation would not meet the norms, besides affordability of the listing fee.
“Today, banks are not lending to MSMEs since they are not able to give any form of security. On the other side, there are investors who are ready to invest in small companies, due to the reach (in terms of price) and the risk is also small. Our aim is to fill the gap, by marrying the small investors and small companies,” an expert said.