MUMBAI, SEPT 7: The Bombay Stock Exchange (BSE), which is yet to put its house in order, has taken up the task of rescuing sick regional stock exchanges. In a bid to overtake the National Stock Exchange (NSE) in trading volumes, the BSE has offered the smaller exchanges the option of taking membership through the subsidiary route. Alternatively, the BSE has proposed that the smaller exchanges can take the MoU route enabling their members to trade on the BSE.These ``proposals'' will be discussed at a meeting of the exchanges convened by the Securities and Exchange Board of India on Wednesday. The idea is to make regional exchanges including Baroda, Bangalore, Coimbatore and Kochi and the Inter-Connected Stock Exchange (ISE) members of the BSE.According to Deena Mehta, vice-president of the BSE, under the subsidiary option, a regional exchange can float a subsidiary or an entity formed by its own members, which in turn will acquire the membership of the BSE. The BSE is working out the modalities includingthe form/type of entity, capital structure and minimum number of persons participating in the exchange.While the details of such a proposal and the functional aspects are yet to be discussed, a market expert said the member of a regional exchange will have dual responsibility - one to his own exchange and the other to the BSE. The subsidiary of a regional exchange (which takes up the membership) will be responsible for all the obligations like trade guarantee, liabilities etc., he added. In which case, the trading member's liability will be to his parent (the subsidiary), while following all the trading norms prescribed by the BSE.The BSE itself proposes to use the local exchange's infrastructure for the purpose of collecting orders and transmitting them to the former through one channel and providing confirmation. The BSE has also stated that exchange specific trades could be settled at the local exchange, while suggesting that the local clearing house be linked to the Central Depository ServicesLimited (CDSL). The BSE in turn will pay/share the transaction cost with the particular exchange. However, CDSL is yet to achieve connectivity with National Securities Depository and start operations.The other option offered by BSE to the exchanges is a memorandum of understanding between the two exchanges. Under such a scheme the trading arrangement on a member to member basis will be decided mutually. BSE has suggested that the exposure of regional exchange member through BSE member should not be included in the regional stock exchange member's local exposure. This is to avoid double margining at the regional exchange for trades on BSE. Under the MoU arrangement, the concept of associate member has to be introduced for members who enter into an arrangement with a BSE member.Regional stock exchanges are slowly heading towards extinction in India. Data available with SEBI reveals that at least eight stock exchanges are in the red and the incomes of several others are falling. In nine stock exchanges,more than 90 per cent of the scrips listed have not witnessed any trades in the current fiscal. In at least 12 stock exchanges, the National Stock Exchange has more turnover from that region than the exchange itself by several multiples.A recent SEBI note which was circulated in a meeting of the secondary market committee reveals that the expenditures incurred by several of the smaller exchanges have outstripped their incomes and this has put a doubt on their survival. In some cases, the losses are increasing rapidly over the previous years while some have recently slipped into the red.The figures also reveal that the National Stock Exchange (NSE) accounts for significantly far higher trades in the same region as these exchanges. The Madhya Pradesh Stock Exchange (Indore), for example, has incurred a loss of Rs 25 lakh in 1998-99 on an income of Rs 76 lakh. OTCEI has incurred a loss of about Rs 7 crore on an income of about Rs 6 crore. The Saurashtra & Kutch Stock Exchange (Rajkot) has a loss of Rs 60lakh, Cochin Stock Exchange of Rs 1 crore, and Coimbatore and Hyderabad a loss of Rs 80 lakh each. The Mangalore Stock Exchange has a loss of Rs 13 lakh on an income of Rs 50 lakh and the Magadh Stock Exchange (Patna) outstripped its Rs 33 lakh income by Rs 22 lakh.While the balance-sheets of these exchanges have come under a severe strain, the NSE has eroded most of the business which these exchanges had earlier accounted for. The average monthly turnover of NSE in the regions in which these exchanges operate was five to 1,000 times more than that of the relevant exchanges in 1998-99. For example, NSE terminals in Hyderabad clocked an average monthly turnover of Rs 1,053 crore in 1998-99 as against the HSE's turnover of Rs 106 crore in the same period. Similarly, the Madras Stock Exchange had an average monthly turnover of Rs 30.80 crore as against Rs 1,443 crore clocked by the terminals of NSE in the city.
