The 76-year-old Madras Stock Exchange (MSE) will soon be "reborn" with a new trading platform, which will focus on micro, small and medium enterprises (MSME). It will help them not only to raise capital, but also with regulatory compliances.
The exchange also is on the verge of inking a deal with the National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned subsidiary of the National Stock Exchange (NSE), for clearing and trading operations.
MSE has also said it is open to merging with other regional stock exchanges (RSEs), which will help more MSMEs to get listed on the MSE platform. It plans to mobilise Rs 100 crore through private placement, including private equity (PE), and an initial public offering (IPO). K N Ramanath, managing director, MSE, said that traditionally SME trading has been the domain of RSEs, which have detailed knowledge of companies that are listed on them.
While the new platform is expected to be launched before the end of the current fiscal, MSE wants to be an incubator for entrepreneurs, so that they can raise capital in an effective and simple way, said Ramanath.
V Nagappan, member of the Advisory Committee at MSE, adds that the exchange will also help entrepreneurs address regulatory issues: "We will train them in complying with regulations, as most MSMEs may be promoted by first-generation entrepreneurs."
He noted that RSEs are the best way for more inclusive growth. Many of today's blue-chip companies trading on the NSE and BSE had started out by trading on the MSE, he said.
Some large corporate houses that were listed on the MSE when it was more active include Hindustan Unilever, L&T, Tata Group companies such as Indian Hotels, Titan and Tata Motors, Birla Group companies Grasim and Hindalco, Reliance Industries, Essar, SPIC and Murugappa Group.
Companies that are still listed on the MSE include Ashok Leyland, Simspon Group companies, TVS, India Cements, Dalmia Cements, MRF, Aban Offshore, Chennai Petroleum Corporation Limited (CPCL), State Bank of India and the Shipping Corporation of India.
"Today banks are not comfortable lending to MSMEs, since they are not able to give any form of security. On the other hand, there are investors who are ready to invest in small companies, because their shares are not highly priced and the risk is also relatively small. Our aim is to fill the gap by marrying the small investors and small companies," said Nagappan.
Why will a company choose the MSE instead of BSE's SME Exchange or NSE's Emerge platform? Ramanath and Nagappan say there is no minimum trading lot size in the MSE as compared to Rs 100,000 in the national SME Exchange; raising money from retail investors is easy; and addressing regulatory issues will be cost-effective. Moreover, from the investor point of view, there is no regulatory arbitrage between national-level exchanges and the MSE, as their listing agreements contain the same number of clauses, including those on corporate governance and periodical reporting.
According to Ramanth, as the exchange progresses, the three major challenges it will face are upgradation of technology, marketing and expansion, and meeting the Securities and Exchange Board of India's requirements. To meet these challenges, the MSE estimates that it will require around Rs 100 crore.
The exchange is looking at raising money through private placement - one option is PE funds - and an IPO. The funds raised will also help the exchange meet Sebi's requirement that an exchange must have a minimum net worth of Rs 100 crore and an average annual turnover of Rs 1,000 crore.
Ramanth said that while Rs 40 crore will be raised through private placement in 2013-14, the exchange will go in for an IPO in 2014-15 to raise the remaining Rs 60 crore.
The turnover requirement can be easily achieved once the platform goes on stream, thanks to the MSE's strong membership base, he said. The total trading turnover of MSE-listed companies that are trading on the NSE platform was around Rs 8,000 crore in 2012-13, and this is expected to increase to about Rs 19,000-20,000 crore in 2017-18.