Once again the issue of the fate of regional stock exchanges comes to light. At the moment, of the 24 stock exchanges registered with the stock market regulator, the Securities & Exchange Board of India, around nine face losing their recognition, and the recognition for four has already expired. Of the 24 exchanges, around eight enjoy a ?permanent? status while the others have to renew their recognition. And even if most of these manage to renew their recognition, not many would be able to make a significant impact. Most of the regional stock exchanges have let the advantage of presence wither away.

Two decades ago most global exchanges were faced with a business dilemma and most reinvented themselves and passed through an evolutionary cycle, which started off with embracing technology, demutualisation, listing or value unlocking and then consolidation. Regional stock exchanges did not make a move to embrace technology and maintained their ?closed door? club image. It took Asia?s oldest bourse, the Bombay Stock Exchange, several years to demutualise, which was in 2007. And while the regional stock exchanges were mulling their future, the National Stock Exchange, which had adopted new technology and is a demutualised entity, stole a march and captured market share.

In the stock exchange, business volumes and liquidity is the most priced factor. Around 80-90% of an exchange?s revenues come through transaction fees. And the business of stock exchanges is still seen as a lucrative one. Analysts reckon that an exchange of a high degree of sophistication can be started with an initial investment of around Rs 200 crore and thereafter the investments are not high. And with operating profit margins of around 45-65%, the cash flow for exchanges is also very high. The only factor is ?liquidity? and regional exchanges have lost out on this. In fact, the Delhi Stock Exchange remained almost shut for six years and is now being revived. Many of these regional stock exchanges have now floated subsidiaries and these, in turn, have become members of the NSE and the BSE. There has been some effort by the BSE, with a view to garnering volumes, to get some of the exchanges together and share their expertise.

However, while this happens and this movement gathers momentum, a few regional exchanges are expected to wind up and pull their shutters down, if they have not already done so.

akash.joshi@expressindia.com