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The Inter-connected Stock Exchange of India (ISE) will hive off its broking subsidiary by the end of May. This is to get the market regulator’s nod to continue operations, in what could be the first in a series of similar transactions.
ISE, promoted by a dozen regional exchanges, has drawn up a shortlist of half a dozen potential buyers for its brokerage subsidiary, ISE Securities & Services Ltd. The sale was a precondition that the Securities and Exchange Board of India set for the start of operations, according to P J Mathew, managing director of the exchange.
“The shortlisted candidates will be conducting due-diligence of the subsidiary and the bidding process will begin shortly afterwards. They would bid by May 15 and the entire process is expected to be concluded by May 30,” he said.
This is likely to be keenly watched by other regional exchanges, say experts.
“Other exchanges, which also have broking subsidiaries, would be watching how the sale happens, as they, too, would have to comply with similar conditions. It will be a test case for them,” said the chief executive officer of a brokerage, which had sent an expression of interest for buying the ISE subsidiary.
“Any stock exchange which wishes to remain in business will have to unload their broking subsidiaries,” said the director of a regional stock exchange based out of Western India.
The Bangalore, Cochin, Saurashtra Kutch and Madhya Pradesh stock exchanges all have broking subsidiaries. The Saurashtra Kutch exchange has already opted to exit the stock exchange business; those which do so would not need to exit the broking business, said a senior official with a regional exchange.
In the case of ISE, there were 12 candidates which expressed interest in bidding for the brokerage. The shortlist was prepared after the ISE held a board meeting on Tuesday to decide on the sale.
ISE’s broking subsidiary is present in 80 locations and has 456 registered sub-brokers and authorised persons on the National Stock Exchange and 280 on the Bombay Stock Exchange, according to company figures. The subsidiary generated average daily trading volumes of roughly Rs 100 crore, with Rs 31,938 crore of total turnover on the BSE and NSE during the financial year ending March 2012.
The brokerage had a total income of Rs 10.3 crore and profit after tax of Rs 1.6 crore for FY12.
BYE-BYE BROKING?
How did exchanges end up with broking subsidiaries?
When trading volumes dwindled on regional exchanges, they offered their trading members a platform to access NSE and BSE through a broking subsidiary
What has changed?
Regional exchanges have to hive off their broking subsidiaries if they want to restart operations
What's happening at ISE?
- Sebi asks ISE to hive off broking subsidiary ISE Securities & Services
- ISE invites bids till March 22
- Twelve entities submit bids
- Board prepares short-list on April 16
- Interested parties to conduct due diligence and submit bids by May 15
- Sale to be completed by May 30
- Other inactive exchanges too will have to hive off their subsidiaries if they want to start operations
