By Kunal Bose
The country has two major stocks exchanges, namely, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Between them, they have a daily turnover of around Rs4 lakh crore across the cash and derivative segments. Though NSE arrived decades after BSE, which prides itself as Asia’s oldest tracing its legacy to 1875, the 1992 born former heralded a revolution in the stock market by introducing a fully electronic, screen-based trading system, thereby removing any opaqueness in the trading system.
The operation of the two exchanges, both located in Mumbai, the country’s financial capital, gives the broking community, the mutual funds and foreign institutional investors (FIIs) a choice of where to trade and secure best prices. Whatever that is, NSE consistently accounts for the vast majority of the daily trading volume. To ensure all transactions remain above board and the two exchanges function seamlessly, the regulator Securities and Exchange Board of India (SEBI) presently headed by Tuhin Kanta Pandey has the oversight of all market operations. Thanks to rapid digital access, fintech participation and growing interest among the young, including the women, the unique registered investor base with both NSE and BSE, but more significantly with the former has continued to expand.
Both the exchanges may be Mumbai based, but digitisation allows anyone anywhere to track real time price movements of all securities and complete transactions seamlessly. The BSE vintage showcases the Indian long tradition of companies raising funds by offering shares and debentures to the public through the stock market. When physical share certificates were the order of the day and digitisation was yet to set in, stock markets the world over had an open outcry system of conducting trade. Your correspondent had seen the trading pits at BSE and Calcutta Stock Exchange (CSE) from where the brokers would give buy and sell orders using shout and hand signals, not fathomable to outsiders. They would quickly scribble down the transactions in a small notebook and that would be the basis of settlement. There then was so much sanctity of word of mouth though said in a virtual melee that disputes over transactions were rare and price discovery was smooth.
As long as physical trading was in vogue, the country needed regional stock exchanges (RSEs) to enable people in their catchment areas to trade. At one point, India had 22 RSEs and two national level exchanges, both operating out of Mumbai. Till such time, NSE and BSE were not fully geared with centralised digital platforms, RSEs had their relevance. Remember in the pre-digitisation days, people in vast areas of the country didn’t have the privilege to trade in securities of any kind, denying corporates to raise resources from them. They include prosperous farmers and traders dealing in agricultural products.
Another momentous change that happened concerning the market was the transition from holding of share/debenture certificates in physical form to paperless ownership enabled by electronic trading. This was brought about by introduction of Depositories Act of 1996 leading to the establishment of two depositories – National Securities Depository Limited (NSDL) in 1996 and Central Depository Services Limited (CDSL) in 1999. The market reforms that happened in quick succession backed by consensus among political parties and relief in investor community drove the final nail into RSEs. Electronic holding spared investors of the agony to go through the rigours of the long-winding process of getting their shares/debentures in their names. In the new order, there is no question of shares being lost or hijacked by unscrupulous people and every transaction is simple and transparent.
The reforms and the growing disenchantment of investors with the way RSEs functioned, being bereft of technology led investors, domestic and foreign to embrace BSE, which had to do a lot of catch up to be seen as a technology driven exchange and NSE for the ease of doing business. As fallen out of favour RSEs found their business fast dwindling, SEBI began the formal process of ‘deactivating and derecognising’ RSEs in May 2012. A strict regulatory mechanism was put in place to systematically shut down RSEs that in any case had become redundant. At the same time, under the oversight of SEBI, the two exchanges with national reach have created the ideal environment for foreigners to trade here. In terms of ease of operation and transaction transparency, BSE and NSE will be regarded at par with leading stock exchanges abroad.
CSE has remained non-functional since 2013, being in the process of voluntary exit under SEBI direction. But that does not stop its members from trading on the platforms of NSE and BSE, facilitated by the Securities Contracts (Regulation) Act, 1956. All this is the reason why West Bengal finance minister Swapan Dasgupta’s proposal to revive the 118-year-old CSE, which had seen its good days long time back has surprised many. In support of his argument for CSE revival, he said in his budget speech: “The revival of the Calcutta Stock Exchange would have multifarious advantages, including easier access to capital for eastern India, lower costs of listing and trading and creating new jobs.”
But the fact remains, the last thing that companies in the east seeking to raise capital from the market need is a local stock exchange. For example, Indian companies mobilised a record amount of around Rs1.95 lakh crore through 373 initial public offerings (IPOs). Irrespective of where it is located, its shares will have takers at a premium if it is a well performing company or it has the promise to become one. For example, Tata Steel, Vedanta, Hindalco and Nalco all have large manufacturing operation in Jharkhand and Odisha and all of them are happy with their shares listed on BSE and NSE. So neither startups seeking to raise funds through IPOs nor the established big ones need a regional stock exchange for any purposes.
CSE is nonfunctional for many years and therefore, bereft of human and other resources. Whatever be the pressure from the West Bengal government, SEBI will find it difficult, if not impossible to justify the revival of a regional stock exchange in Bengal or elsewhere. No doubt Dasgupta latched onto CSE revival for good political optics, knowing fully well that it will be a nonstarter. (IPA Service)
