Madras Stock Exchange ropes in new members

The tie-up with National Stock Exchange has helped it attract 30 new members and it expects to add 100 more in the next five months

The tie-up between the National Stock Exchange (NSE) and Madras Stock Exchange (MSE), a regional stock exchange, has helped the latter to rope in new members. MSE’s representatives have said that the major beneficiaries are small and medium enterprises (SMEs) and retail investors.

In addition, this has helped the NSE to penetrate new markets.

MSE had signed a memorandum of understanding (MoU) with NSE in November 2009, which allows members of the MSE to trade on the NSE platform, in the cash and futures and options (F & O) segments, by issuing MSE contract notes.

 

P Sampathkumar, manager-listing at MSE, said, “For some time MSE was not able to attract new members, but after this tie-up we have managed to get more than 30 new members and many more are in the pipeline.”

The MSE charges a membership fee of Rs 100,000.

Sampathkumar said that in the next four or five months the exchange is confident of taking the number of new members to 100. After the MoU was signed the exchange had set a target of adding 500 members by 2012, and this could certainly be achieved, he added.

“This tie-up really boosted the volume traded and liquidity for scrips,” said V Nagappan, director of Madras Stock Exchange.

He added that small investors have been the major beneficiaries of the tie-up, as liquidity has improved and the value of their holdings in companies has gone up after the tie-up with NSE.

However, according to Nagappan, a major issue has to be addressed — the requirement of listing at national-level stock exchanges.

“It may be difficult for SMEs to comply with the current requirement, as their capital requirements are small and the relative costs of listing on national-level exchanges may be higher, thereby acting as a deterrent. Hence, listing of IPOs on regional stock exchanges (RSEs) should be permitted through strategic tie-ups between the RSEs and national-level exchanges,” he said.

Traditionally, SMEs’ source of capital has been banks, but they are now asking for substantial collateral. The other source has been private equity funds, but they are now looking for bigger investments. SMEs neither require large investments nor do they have collateral to offer banks.

“They are not able to go in for public listing because of the restrictions. If the national-level stock exchanges and the regulator give the regional stock exchanges relief on this, it would enable them to help more SMEs and regional companies to go public,” according to an industry representative.

Gopinath Prabhu, director of Bangalore-based NCO Securities, one of the companies that use the MSE as a platform to trade on the NSE, said that the major advantage of the tie-up is membership cost, which according to him had come down by 95 per cent. It also offers the scope of increasing entrepreneurship in tier-II and III towns, he said.

He noted that if a start-up entrepreneur wanted to get a direct membership of a national-level exchange, he/she would need to have a net worth of Rs 1 crore, which includes paid-up capital and deposit.

For NSE, the advantage of such regional a tie-up is that it enables it to penetrate new cities and towns.