ISE chalks out plans to salvage itself

It is planning to consider the issue of entering into an alliance with the NSE, the BSE and the Calcutta Stock Exchange or create subsidiaries which would take up membership/trading rights on these exchanges. However, it is not clear about theresponse of the BSE and NSE towards the alliance plan.

“This move is aimed at providing the traders and dealers of ISE instantaneous access to liquid markets, which would also contribute to greater turnover on the ISE through increased arbitrage opportunities. Provision of multiple markets to its traders and dealers would be a unique selling proposition of the ISE,” ISE officials claimed. However, its promoter-exchanges are now crying for business and clients.

Another grand plan of the ISE is badla (carry-forward trading). SEBI has indicated that they would consider the proposal for introduction of badla on the ISE. The ISE move for badla trading comes at a time when the SEBI is planning to introduce rolling settlement. This will transform Indian exchanges into cash markets with deals settled on a daily basis as against the weekly settlement.

Another major ISE plan is to increase the membership. “Dealers can be appointed in various cities and towns where regional stock exchanges are not located sothat business from cash-rich pockets can be tapped. As a result, retail investors spread all over the country would be served better and more efficiently. In addition, liquidity in the regional scrips would also receive a boost,” ISE officials said. Members of the regional exchanges, on the other hand, are closing down business as investors are deserting them.

SEBI has indicated that it would consider lowering of settlement guarantee fund (SGF) corpus requirements for small regional stock exchanges so that they too could expand to other regional centres close to where they are located. “This would lead to ISE facilities being available even at such centres,” said a note prepared by the ISE.

According to an ISE official, the SEBI had indicated that it would consider the proposal for listing of Mumbai-based companies having a paid-up capital between Rs 3 crore and Rs 10 crore on the ISE as a regional stock exchange.

“Such a move would result in widening of the reach for such companies to all thelocations of the participating exchanges. This would also improve liquidity in such securities. It would also become a regular source of income for ISE,” said an ISE note.

The Inter-connected Stock Exchange plan to quickly establish as a stock exchange is understandable as its promoter-exchanges are facing problems. While the balance-sheets of these regional exchanges have come under a severe strain, the NSE has got most of the business which these exchanges had earlier accounted for. The average monthly turnover of the NSE in some of these cities is several times more than the regional exchanges. 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.

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.

Several of the ISE’s promoters are in deep financial problems with their expenditure exceeding the incomelevels. The Madhya Pradesh Stock Exchange (at Indore), for example, has incurred a loss of Rs 25 lakh in 1998-99 on an income of Rs 76 lakh. The Saurashtra & Kutch Stock Exchange (Rajkot) has made a loss of Rs 60 lakh, Cochin Stock Exchange of Rs 1 crore and Coimbatore and Hyderabad stock exchanges have made a loss of Rs 80 lakh each.