Sucheta Dalal :Merge BSE and NSE (30 April 2001)
Sucheta Dalal

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Merge BSE and NSE (30 April 2001)  

A large scam is always a time for drastic action and cleansing measures. Problems with inter-exchange arbitrage deals clearly point to the need to shut down several loss-making stock exchanges, which have pitiful trading volumes.

But we know about Sebi’s reluctance to tackle the problem of multiplicity of bourses and witnessed the introduction of two new and needless bourses in the last decade: the OTCEI and the Integrated Stock Exchanges of India. The latter is an attempt to create a national trading platform for smaller exchanges while retaining part of their original structure and profile. These experiments have failed because most brokers in smaller cities too have direct memberships to the two main bourses — the Bombay Stock Exchange and the National Stock Exchange.

In the circumstances, an international perspective shows up our tendency to make such a mountain out of small decisions that dramatic changes are not even on the agenda. It needed George Ugeux, group executive vice-president of the New York Stock Exchange (NYSE) to point out an obvious solution. Speaking at a discussion of the Confederation of Indian Industry, he said that it was time to merge the BSE and the NSE.

The NSE has a proven track record and the BSE is on the verge of radical structural change. In the process of corporatisation, it is already clear that brokers will not be in charge of management — this should end any hostile opposition to the move. Secondly, many members hold memberships of both exchanges or at least offer trading facilities to their clients on both, through sub-brokers.

Thirdly, the government is struggling to find a tough professional president who will lead the BSE through the process of change. All these problems have one solution: merge the two bourses.

About the others

It’s difficult to imagine a merger or the BSE and the NSE at this stage, but it is just as clear that shutting down the smaller bourses is long overdue. At the very least, we need a frank discussion on the fate of the OTCEI and Integrated Stock Exchange, and to analyse their chances of long term survival. Is the country large enough to require at least four or five large bourses when the investor population is not growing very significantly? And who will be the survivors? Delhi, Kolkata, Ahmedabad and Chennai seem like the obvious answers. The rest need to be merged or shut.

However, if CSE is allowed to survive, it can only be allowed to do so after a drastic revamp of the exchange. Unfortunately, what would have been a continuous post-Scam 2001 action plan will probably be derailed by the Joint Parliamentary Committee and all major plans will be put on hold until the JPC investigation is complete.

CDSL in turmoil

The firebrand leader of the Brokers Forum and Chairman of the Central Depository of Shares (CDSL) — M G Damani is in trouble these days. The Bombay Stock Exchange’s (BSE) independent and professional management has not appreciated the frank-speak in his newspaper columns, and have written to him to say so. Also, there is allegedly an attempt brewing to remove Damani from his post as the head of CDSL. Sources say that the BSE, which is the main promoter of CDSL, has asked it to postpone a scheduled board meeting.

This has set off speculation that the BSE does not want CDSL to discuss issues related to the reduction of its own holding in the depository. It has led to the conclusion that Damani, who has already incurred the displeasure of the BSE board, may also be asked to go. However, Damani is a known fighter and has established strong political connections. Savvy BSE insiders believe that ousting him may not be as easy as the board thinks, and are sitting back to witness entertaining times.

IndusInd’s losses

IndusInd Bank’s reckless broker funding continues to cause it losses and embarrassment. The bank has Rs 24 crore stuck in a dispute with SHCIL, it has lost Rs 18 crore in inter-exchange arbitrage deals and had a Rs 15 crore guarantee invoked. There is more. The Sebi inspection quotes the CSE blaming the bank for some of its problems. Its Rs 122 crore shortfall was plugged with Rs 89 crore obtained by pledging HFCL shares belonging to Dinesh Singhania, Harish Biyani and Ashok Poddar. The CSE says it would have done even better but for IndusInd having dishonoured a Rs 16 crore margin cheque of Dinesh Dalmia and backing out of a commitment for a Rs 15 crore advance to Harish Biyani. Clearly, when the crisis began and the Reserve Bank of India began to crack the supervision whip, IndusInd was among the private bankers, which was scrambling to cut its losses, whatever the cost.

-- Sucheta Dalal