Create a level field for stock exchanges

Let8217;s start with Rathi8217;s charge regarding an unequal playing field. It goes back to the creation of the NSE, which, through the use of satellite- based technology, broke geographical boundaries that had ensured exclusive operational jurisdiction to India8217;s 20-odd regional stock exchanges and theirmembers. Their position was further strengthened and legitimised through the stipulation that companies within a geographical area would have to be compulsorily listed on the regional exchange.

The entry of the NSE changed the rules of the trading game. Geographical boundaries were made meaningless and its rapid nationwide expansion posed a serious threat to all regional exchanges. It offered direct access to a single trading network, better prices and an efficient and transparent trading system that was run by professionals who had no interest in safeguarding the value of membership cards.

The one crucial difference was that NSE offered direct membership to individuals all over the country, while the BSE wanted to ensure that the value of its membership card is not diluted. This is because a BSE membership is not as a trading licence, but is seen as property that is passed down to the member8217;s heir. Hence, instead of enrolling members at other cities, the BSE chose to operate through a network ofsub-brokers. The situation was more complicated in places where there were existing regional exchanges. The BSE was first refused permission to expand in these cities and later worked through MoUs with the regional exchange, whereby orders are routed through the BOLT but contract notes issued on the regional membership.Even as Rathi demands a level playing field, SEBI has cleared a third nationwide system that of the Inter-connected Stock Exchanges, which offer yet another nationwide trading platform to five regional exchanges. If this isn8217;t confusing enough, let us not forget the existence of the OTC Exchange of India OTCEI. This near-defunct exchange, which is in the process of being revived by the NSE, is also supposed to be a national trading system that never really took off.

Clearly, at least three of these trading systems, can be developed to cater to specific niche markets. For instance, the OTCEI could probably enjoy a revival if it8217;s converted into a market for high risk, unlisted securities orthe hundreds of small cap and illiquid scrips which the BSE may want to transfer to a smaller exchange.

But, so far SEBI is not even debating the viability of these exchanges, let alone analysing the numerous changes required for a truly level playing field. After all, the difference between the exchanges is not limited to their trading systems and freedom to expand their very structure is different and needs to be leveled. The BSE is an association, and enjoys a tax-exempt status, the NSE is structured as a tax paying company. At a time when PSUs are being forced to give up their claims to exemptions and cheap funds, there is no reason why stock exchanges and depositories should not be made to contribute to the exchequer.

With multiple systems offering nationwide access to investors, the obvious casualties are the 20 plus regional stock exchanges. SEBI8217;s statistics show that eight of these are in the red and others are headed for sickness. There is obviously no question of their being able to invest intechnology and improved surveillance systems. In many stock exchanges, over ninety per cent of the scrips are inactive and the NSE8217;s turnover is several times that of the regional exchange. It has been reported that the Saurashtra and Kutch Exchange and the Magadh stock exchange did not have a single trade this fiscal year 8212; yet SEBI is on the verge of clearing yet another exchange in the south.

Do we need bourses at Magadh, Mangalore, Jaipur, Bhubhaneswar, Guwahati, Coimbatore and Cochin when even the larger exchanges at Hyderabad, Chennai are doing a fraction of the volumes traded on the NSE? Yes, there is a need to level the playing field and move towards a sensible market system that recognises that weak exchanges should be encouraged to merge, or die. It has happened all over the world and needs to happen in India as well. There will then be enough of business for three or four well- run and powerful trading systems without indulging in mindless rivalry.

Author8217;s e-mail:suchetadalalyahoo.com