Corporatised BSE likely to join hands with weak stock exchanges

Sujoy Manna

Mumbai, Aug 26: CONSOLIDATION of stock exchanges (SEs) now seems more closer than in the past, if the hopes of some of the faltering and low-volume SEs to merge with the The Stock Exchange, Mumbai (BSE) fructify, albeit after the latter’s plans for demutualisation and corporatisation are cleared by the Securities and Exchange Board of India (Sebi) and the ministry of finance (MoF).

According to sources, the BSE is also open to the idea of merger but the exchange has to demutualise first before it can merge with any other exchanges.

In this direction, representatives of a number of regional stock exchanges like Delhi, Ahmedabad, Bangalore, Rajkot and Calcutta among others have expressed their interest for a possible merger with the BSE. The dismal financial condition of these SE have forced them to look out for a survival strategy by merging with the BSE.

To be precise, the issue of the BSE merging with other exchanges gets a hit from the fact that different exchanges have different card values and the members cannot be entitled to same trading rights with different card values.

Therefore, the BSE has to demutualise first to separate the ownership right from trading right before getting merged with the other regional exchanges so that after merger all members have the same trading rights.

Further, sources said the merger is likely to benefit the BSE as it would give the latter a much wider reach in other parts of the country.

The regional exchanges with local networks have a significant investor base along with listing of regional companies. Besides, the regional SEs earn a substantial amount from non-business income like income from listing, interest and rent.

This non-business income accounted for 76 per cent and 68 per cent of the total income for all exchanges (except the BSE and National Stock Exchange) and 47 per cent and 39 per cent for all exchanges respectively in 1998-1999 and 1999-2000.

The NSE has its terminals located in 402 cities with 3340 VSATs. This wider reach has enabled the NSE to become the largest stock exchange just after seven years of operation, said sources. It could be also mentioned that in the developed markets, the need for corporatisation has been realised and already steps have been taken to move towards demutualisation. Corporatisation would result in the ownership, management and trading membership being segregated from other which is the latest trend being observed in these markets.