Cse Plumps For Ajay Shah Report, Recast On Cards

The Calcutta Stock Exchange (CSE) may soon go in for organisational restructuring and implement a number of recommendations made by Ajay Shah, professor of Indira Gandhi Institute of Development Research. Sources on the CSE board said the committee members have reacted favourably to a number of suggestions by Shah who met the CSE committee members and executives in day-long meetings on Saturday. An in-principle decision has been taken to retain Ajay Shah and Susan Shah as long-term consultants for the bourse. The terms will be finalised soon.

According to committee members, Ajay Shahs recommendations were especially attractive because the restructuring exercise could be implemented without the need for any huge fund mobilisation.

 

According to sources, Shah was open to the idea of being on the board of CSE as a public nominee, but board members felt that it would be better to have him in the role of an independent consultant and leave the implementation of his recommendations to the committee.

Speaking to Business Standard on Saturday, Ajay Shah said: "The exchange needs to project itself as a clean, efficient, bourse with a proper administrative set-up. Moreover, to compete with the National Stock Exchange and the Bombay Stock Exchange, the exchange should hardsell its core strengths especially to the FIIs, the FIs and the national market." Shah has recommended that administration of the exchange be separated from policy making. He suggested the formation of a separate professional body for the former, leaving policy making to the committee.

In the long run, the sub-committees that operate in the exchange today, will also have to wither away, said Shah, and the administration must shoulder the entire responsibility.

The committee may review the working of the administration and may even have representatives to help from time to time, but the board will no longer be concerned with the daily running of the bourse. This, according to Shah, will instil confidence in investors and add credence to the bourses claim of being a professionally managed, transparent organisation.

Ajay Shah has mooted the setting up of a clearing corporation with separate professional management rather than a clearing house with a trade guarantee fund. This will increase the confidence of investors and boost the chances of the bourse attracting foreign institutional investors. According to Shah, FIIs are more concerned with the system of risk management rather than the corpus of the trade guarantee fund.

Shah said that questions could be raised regarding the unbiasedness of granting risk cover if board members are involved in default, as they will be involved in the management of a clearing house. Thus a clearing corporation with professional management will conform to internationally accepted standards of risk management and add to the image of CSE as a transparent bourse.

Product innovation was another area that Shah recommended. A committee member said that Shah had suggested derivatives trading on the exchange as soon as the Securities and Exchange Board of India cleared it. Index options and futures pose no threat to the financial services community if proper risk management systems are in place, said Shah. Also, the software for derivative trading on the exchange is available in the affordable range of Rs 60 lakh to Rs 70 lakh.

Sources said that CSE may set up a bourse for commodity trading at a later stage and even introduce futures trading if it is allowed by the regulatory authorities.