Subject Dse To Competition

The inspection report of the Securities and Exchange Board of India (Sebi) on the Delhi Stock Exchange is damning, to put it mildly. It would appear that all payments from members to the stock exchange are in the form of voluntary contributions "� stocks continue to be traded of companies which have not paid listing fees, some members have not paid their annual subscriptions for three years, and members have been using the stock exchange even without paying rent for cabins. Many of them have not fulfilled capital adequacy norms; barring of defaulters and enforcement of arbitration awards are a matter of accident. Settlements have been delayed, auctions are hardly carried out in the event of short deliveries, complaints against members are treated cavalierly, and transactions have been reversed to bale out a defaulting member. Anyone reading the report could very well come to the conclusion that the Delhi Stock Exchange is a club run in the interests of an incompetent and possibly corrupt coterie.

 

The strictures are so strong that in the pre-reform days, the inspection report would have been a prelude to the supersession of the board of the exchange. Even now Sebi may be tempted to do so. But the frequent and drastic manipulation of boards in the old days never led to any improvement in the working of exchanges. However much Sebi may shuffle the directors, the members remain the same, the law makes exchanges democracies controlled by the members, and government nominees on the board cannot reform members.

What then of the new weapon "� competition? The controller of capital issues tried for decades to reform the Bombay stock exchange, without results. But as soon as the national stock exchange opened, the Bombay stock exchange woke up and began to charge around like a monkey with a cracker tied to its tail. Today the BSE is as good as the best in its trading and settlement practices.

Why has that competition not transformed the Delhi stock exchange as well? That is because Sebi has protected it from competition. After sitting for months on the BSE's application to extend the Bombay on-line trading system (BOLT), Sebi finally agreed "� but BOLT could be extended to a city only if the local stock exchange agreed. The Delhi stock exchange did not, for obvious reasons; in this way, Sebi has protected the DSE's incompetence and venality. The lesson to be drawn from Sebi's report is that Sebi should remove all restrictions on inter-exchange competition "� that any exchange should be allowed to extend itself into any city.

This will also put paid to the very dated notion that you need a separate exchange in virtually every city and important town. There is no particular reason why, with modern communications and screen-based trading, large well-organised exchanges should not be able to offer better service in Ludhiana and Kanpur than local bucket-shop competitors.