Regional stock exchanges continue to bleed

The Hyderabad Stock Exchange has made a loss of Rs 91.22 lakh as its expenditure of Rs 282.94 lakh exceeded its income of Rs 191.72 lakh for the year 1998-99. The Coimbatore Stock Exchange suffered a loss of Rs 82 lakh as it posted an income of only Rs 155.89 lakh as against the expenditure of Rs 237.93 lakh. The Cochin Stock Exchange made a loss of Rs 103 lakh as it generated a revenue of Rs 153.30 lakh against an expenditure of Rs 256.65 lakh. Over-the-Counter Exchange of India (OTCEI) made a loss of nearly Rs 6 crore 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 than the regional stock exchange based there. For example, in Chennai, while NSE brokers registered a turnover of Rs 17,317 crore in 1998-99, the Chennai Stock Exchange posted a turnover of only Rs 370 crore. Similarly, in Hyderabad, NSE brokers posted a turnover of Rs 12,648 crore as against the turnover of Rs 1,276 crore on the Hyderabad Stock Exchange. The same story was repeated in other cities like Bangalore, Vadodara, Cochin, Jaipur and Madhya Pradesh.

Now with SEBI allowing regional exchanges to become members of the NSE or bigger exchanges like the Bombay Stock Exchange, these regional exchanges are likely to stay afloat. As per the SEBI plan, these exchanges will float subsidiaries which will become members of the NSE or BSE and route trades through 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, both issuersand investors preferred to list and trade on exchanges providing nationwide network. This reduced relevance of regional exchanges and also their turnover. “NSE now reports a higher turnover in the region than that of most of the regional exchanges. BSE is also having substantial turnover in these regions through VSATs. Top six exchanges in aggregate account for over 98 per cent of the turnover in 1998-99. The turnover on remaining 18 exchanges is too low to justify their continued viability. Policies requiring listing of a security on a regional exchange and requiring a regional exchange to invest heavily on technology have kept smaller exchanges clinically alive,” said `Indian Securities Market – A Review’ brought out by the NSE.

With the fall in turnover, financial health of the exchanges is deteriorating. While the income of the regional exchanges is reducing, their expenditure is increasing because of increasing administrative and maintenance cost and increased investment on setting up onlinetrading system, as prescribed by the regulator. “Protecting viability of smaller regional stock exchanges has been engaging the minds of the policy makers, because these exchanges have been recognised by them on being satisfied of the need for them and their viability. However, when the world is moving towards 24 hours trading through out the year, it is difficult to imagine survival of all 24 exchanges,” it said.

Internationally, most small stock exchanges have either merged with larger ones, worked out alliances or have developed niche markets, which they can profitably serve. For example, in Canada, the four stock exchanges have agreed amongst themselves to serve a specific market segment – the Toronto Stock Exchange is the senior equities exchange, the Montreal Stock Exchange is the derivative exchange and the VSE and the ASE have merged to form a new venture exchange, called Canadian Venture Exchange.

There are 24 exchanges in the country now. “These have been recognised over a period oftime to enable investors across the length and breadth of the country to access the market. In order to provide an opportunity to investors to invest in the securities of local companies, listing of companies on the local exchange was made mandatory. Growing regional aspiration of people and the policy of listing on regional exchange induced people to seek a new exchange in their locality,” said the NSE study.