Regional bourses face closure

Sebi panel says their only option is to join mainstream trading platform.

Markets regulator the Securities and Exchange Board of India (Sebi) has come closer to compulsorily withdrawing the recognition of non-functional regional stock exchanges (RSEs) after a nine-member panel submitted its recommendations to the regulator on Monday.

Unless willing to be part of an alternative trading platform, the committee, which was set up to look into the role and relevance of such exchanges, has recommended that such exchanges be either voluntarily or forcibly dissolved in the interest of investors.

"Those which do not want to continue as exchanges should be given an exit option, the recognition of such which are notorious for their rank... should be compulsorily withdrawn and those RSEs which have the potential and the willingness to participate in any alternate trading platform may be continued," the committee headed by wholetime member G Anantharaman said.

The observations will have implications on the regulator's action on the 20 exchanges, including the bigger ones in Calcutta and UP, though Sebi said it is still inviting feedback on the same.

The main reason for the recommendations has been the obsolescence into which the exchanges have been pushed by technological advancements.

The report noted that nearly all of the secondary market activity in the country happens on the two big networked platforms, the NSE and the BSE and that, except the UP and Calcutta exchanges, the others did not have any major trading taking place on them.

"The RSEs were established with the objective of providing a regional market for raising capital by companies in the respective regions by garnering regional savings to help achieve a balanced regional development and to spread the equity cult among investors in the country. This objective has been fairly served by the RSEs for a length of time. But with the advent of modern telecommunication and information technology and the symbiotic interaction of technology and the markets, which facilitated a fundamental transformation of the market micro structure, the scope of RSEs became limited till they virtually lost their relevence," the committee said in the report.

It pointed out that earlier ad-hoc rehabilitation measures, which included such initiatives as the development of an alternative platform combining the regional exchanges did not succeed partly because of a lukewarm response from members of such exchanges.

"The committee also notes that there are certain deeply embedded behavioural issues which continue to dominate the mindset of the members of the RSEs and they seem to be coming in the way of some RSEs accepting the reality which demands sub-ordination of their individual and independent identity before the larger interest of the very survival of the RSEs," it said.

The report also noted that members of regional exchanges were not unduly concerned about the future of platforms, as most of them had presence in alternate trading platforms, directly or indirectly.