END OF THE ROAD FOR REGIONAL BOURSES
By Ruma Dubey
30th May 2014. The deadline looms large and many shutters are expected to go down.
Circa 30th May 2012. SEBI issued a circular to all regional stock exchanges in India to buckle up. It made it mandatory for these exchanges to have an annual turnover of Rs.1000 crore and a net worth of Rs.100 crore. They were given two years to fulfill this need and day after tomorrow, this period of ‘shoring up’ ends. Most of the regional stock exchanges have failed to meet SEBI’s requirement and that means we might soon have to bid adieu to these various regional stock exchanges.
The first to opt for an exit option is Madras Stock Exchange. This 77-year old exchange had an emotional farewell on 26th May where all members voted for a voluntary exit. And some 14 other regional exchanges have also opted for an exit. There are a total of 21 regional exchanges and for the past 4-5 years, they have not been any real business to truly talk about. Hyderabad and Saurashtra have already shut in 2013 and others - Ahmedabad, Delhi, Kochi, Mangalore, Madhya Pradesh, Bangalore, Bhubaneshwar, ISE, Jaipur, Cochin, Coimbatore, Ludhiana, Gauhati, Pune, Uttar Pradesh and Vadodara; all have reportedly opted for an exit. Calcutta Stock Exchange remains stubborn; this 95-year old exchange hardly transacts any business but remains adamant to keep it going. Having garnered a reputation since 1990’s of being one of the most opaque bourses, turning more into an operators hub, it baffles one to understand this logic of this need to flog a dead horse. In 2011, Mamata Banerjee, in her manifesto had promised revival of the exchange but seems to have forgotten all about it. Maybe the deadline will wake her up to this unkept promise of hers.
But let’s look at things logically. In this era of NSE and BSE, where you can trade from anywhere in the world, there is really no relevance of the regional stock exchanges. In the days before computerized trading and NSE, these regional stock exchanges had an important function of helping many across India conduct trading. 70% of the total business was done through regional bourses. And today, 99% of the companies opt for listing only on BSE and NSE and no other regional exchange even remotely figures out in the ‘to be listed’ list.
SEBI is also keen to give these regional exchanges an exit route. For some companies listed exclusively on regional bourses, SEBI has promised a smooth transition to the NSE or BSE. Currently, around 4000 companies continue to remain listed on regional exchanges of which 2100 are listed on Ahmedabad. SEBI is also facilitating delisting, where it has waived off minimum public shareholding and other legalities.
But then what happens to the various members of the regional exchanges? As per the Exit procedure, after the exchange has opted for the exit, SEBI appoints independent valuation experts. They take stock of the assets of the exchange and work out a ‘salvage value’ . Once this value is approved, the said sum of salvage money is distributed to shareholders and trading members of the bourses.
Most regional exchanges, once they have exited are likely to become realty projects. Madhya Pradesh stock exchange has 5000 sq.feet of trading floor and fully furnished office; Saurashtra-Kutch exchange has already started earning rental income, Vadodara is sitting on realty worth Rs.70 crore, Calcutta has many properties. Two exchanges of the south – Madras and Bangalore plan to venture into financial services business. These exchanges will convert the companies into a non-stock exchange company and become something like a NBFC.
There are many who want regional bourses to survive and say that they can be reinvented into exchanges for small and medium scale businesses. But we already have that platform; so clearly, its time to let go.
Old is gold but sometimes, we need to let go of the old and make way for the more efficient and transparent new. It’s indeed best to bid, “Ok, tata, bye-bye” to the regional bourses of India.