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Business
Can regional SEs survive?
A SUB-COMMITTEE, headed by M.R.Mayya, former Executive Director of the Bombay Stock Exchange, is reported to have favoured the merger of increasingly marginalised regional stock exchanges with the Over-The-Counter Exchange of India (OTCEI). While doing so, the sub-panel appears to be suggesting that these `splinter stock exchanges' could be consolidated to form a `Third Front' to blunt the growing influence of BSE (Bombay Stock Exchange) and National Stock Exchange (NSE) in an era where arbitrage opportunity has dwindled considerably.
The experience of the `Third Front' in Indian politics has been a disastrous one. Will the `Third Front' experience be any different on the Indian bourses? Be it in politics or now in bourses, the Third Front idea is the culmination of a deep-felt desire to survive and avoid getting irrelevant. Suggestions for such a formation usually come from the `threatened'. In this instance, however, the idea for a third front has come from a SEBI-sponsored sub-panel.
With walls getting dismantled and boundaries disappearing, mergers and acquisitions (M&As) are unavoidable course correctives in the global commerce sphere. The course suggested by the Mayya panel, however, is riddled with too many imponderables. Why should OTCEI be the merged entity? The reasons are hard to comprehend. The OTCEI concept never really took off in this country, however well intentioned the objective of floating it in the first place might be. Today, one has to hold a magnifying glass to discover OTCEI counters. Likewise, regional stock exchanges have mostly gone off the brokers' electronic screens and minds of corporate India. Amalgamating the `merely existing' and financially weak regional exchanges with an almost invisible OTCEI does not necessarily make up for a stronger entity to take on the might of NSE and BSE.
In the age of connectivity and communication, the two premier bourses have seen that their terminals intrude the length and breadth of the sub-continent, rendering the regional stock exchanges inconsequential. In former times, corporates queued up to the regional exchanges primarily because the then principal bourse, BSE, did not have the connectivity. The advent of NSE has since brought a see-change in the `bourse experience'. Be it investors or companies and even brokers, these two exchanges have become their preferred destinations, much to the chagrin of the regional bourses. Greater business volume, better price recovery, improved liquidity and the like are the sine qua non for any exchange worth its name to attract investors, brokers, companies and whoever else.
In a dynamic environment, any cure based on non-commercial and unrealistic considerations is bound to bring fresh problems than it seeks to solve. The amalgam of too many into one, as suggested by the Mayya panel, is sure to throw up a host of issues that may not fetch readymade answers. The integration of personnel, system and the like is easier said than done in such a scenario. Before one could expend the time and money on sorting out these matters, the two principal and financially stronger exchanges will have gone miles ahead, making a mockery of the very merger exercise. An ideal prescription will be to let the able among brokers (even in regional SEs) stay by rolling out a level field. And, this lies in spreading out a uniform rules across the `bourse spectrum'.
With listing fees evaporating (with corporates showing non-preference to regional stock exchanges) and the recently levied turnover fee not compensating them much, the regional stock exchanges have sort of survived, thanks to the income tax exemption. Instead of leading them up the garden path by suggesting their merger with the OTCEI, these regional stock exchanges can be left to discover their own survival strategies. Depending on their own considered wisdom, they can look at various options ranging from acting as an appendage of either of the two premier bourses to turning themselves into their local vigilance entities and what not. In the extreme case, they can even just fade away after discharging their obligations, including settlement of dues not paid by the brokers. A decision, in any case, must emanate from within and not imposed from outside. After all the job of an organisation like the Securities and Exchange Board of India is to regulate and not waste time and manpower in ensuring that these regional stock exchanges, which have outlived their time and utility, survive somehow or the other.
Time and tide, they say, will wait for none. Markets too won't wait for the regional stock exchanges to shape up. The race for the market will be won only by the strong and the best.
K. T. Jagannathan
in Chennai
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