Regional stock exchanges continue bleeding

The Hyderabad Stock Exchange has made a loss of Rs 91.22 lakh as itsexpenditure of Rs 282.94 lakh exceeded its income of Rs 191.72 lakh for theyear 1998-99. The Coimbatore Stock Exchange suffered a loss of Rs 82 lakh asit posted an income of only Rs 155.89 lakh as against the expenditure of Rs237.93 lakh. The Cochin Stock Exchange made a loss of Rs 103 lakh as itgenerated a revenue of Rs 153.30 lakh against an expenditure of Rs 256.65lakh. Over-the-Counter Exchange of India OTCEI made a loss of nearly Rs 6crore as its expenditure shot up to Rs 13.02 crore.

Other exchanges in Mangalore, Magadh and South Kanara also made losses.Interestingly, the turnover of the NSE in some of the cities was more thanthe regional stock exchange based there. For example, in Chennai, while NSEbrokers registered a turnover of Rs 17,317 crore in 1998-99, the ChennaiStock Exchange posted a turnover of only Rs 370 crore. Similarly, inHyderabad, NSE brokers posted a turnover of Rs 12,648 crore as against theturnover of Rs 1,276 crore on the Hyderabad Stock Exchange. The same storywas repeated in other cities like Bangalore, Vadodara, Cochin, Jaipur andMadhya Pradesh.

Now with SEBI allowing regional exchanges to become members of the NSE orbigger exchanges like the Bombay Stock Exchange, these regional exchangesare likely to stay afloat. As per the SEBI plan, these exchanges will floatsubsidiaries which will become members of the NSE or BSE and route tradesthrough these big bourses.

With the advent of the nationwide trading network of the NSE and the BSE,which was possible because of adoption of world class technologies, bothissuers and investors preferred to list and trade on exchanges providingnationwide network. This reduced relevance of regional exchanges and alsotheir turnover. 8220;NSE now reports a higher turnover in the region than thatof most of the regional exchanges. BSE is also having substantial turnoverin these regions through VSATs. Top six exchanges in aggregate account forover 98 per cent of the turnover in 1998-99. The turnover on remaining 18exchanges is too low to justify their continued viability. Policiesrequiring listing of a security on a regional exchange and requiring aregional exchange to invest heavily on technology have kept smallerexchanges clinically alive,8221; said Indian Securities Market 8211; A Review8217;brought out by the NSE.

With the fall in turnover, financial health of the exchanges isdeteriorating. While the income of the regional exchanges is reducing, theirexpenditure is increasing because of increasing administrative andmaintenance cost and increased investment on setting up online tradingsystem, as prescribed by the regulator. 8220;Protecting viability of smallerregional stock exchanges has been engaging the minds of the policy makers,because these exchanges have been recognised by them on being satisfied ofthe need for them and their viability. However, when the world is movingtowards 24 hours trading through out the year, it is difficult to imaginesurvival of all 24 exchanges,8221; it said.

Internationally, most small stock exchanges have either merged with largerones, worked out alliances or have developed niche markets, which they canprofitably serve. For example, in Canada, the four stock exchanges haveagreed amongst themselves to serve a specific market segment 8211; the TorontoStock Exchange is the senior equities exchange, the Montreal Stock Exchangeis the derivative exchange and the VSE and the ASE have merged to form a newventure exchange, called Canadian Venture Exchange.

There are 24 exchanges in the country now. 8220;These have been recognisedover a period of time to enable investors across the length and breadth ofthe country to access the market. In order to provide an opportunity toinvestors to invest in the securities of local companies, listing ofcompanies on the local exchange was made mandatory. Growing regionalaspiration of people and the policy of listing on regional exchange inducedpeople to seek a new exchange in their locality,8221; said the NSE study.