The Hindu Business Line : Trading platform for small, mid-cap cos on the cards

A PROPOSAL to provide a platform for trading and settlement of shares of small- and medium-cap companies listed both in the BSE and various small regional exchanges has been jointly made by the BSE and the Federation of Indian Stock Exchanges (FISE) to the Securities and Exchange Board of India (SEBI).

The trading platform christened as `BSE-IndoNext' would enable shares of companies with a paid-up capital up to Rs 20 crore listed and traded on the BSE and the participating regional stock exchanges (RSEs) to be traded in a national market through a single order book on the BOLT system of BSE.

It is said that out of the 20 RSEs in the country, so far 14 exchanges have expressed their willingness to participate in the new venture.

In a joint proposal made to SEBI early this month, Dr Manoj Vaish, Executive Director and CEO, BSE, and Mr V. Ramu Sharma, Chairman, FISE, said that since a majority of RSEs have no trading activity now, the shares of small and medium cap companies listed only on various RSEs did not have any liquidity.

This denied the investors in small-cap companies an exit route and `realise a fair value' for their investment. These companies were also not able to raise fresh resources from the capital markets to meet their funds requirement hampering their growth and this was not in the overall interest of the economy in general and the capital markets in particular.

The BSE and the FISE, which represents 20 RSEs in the country, proposed the formation of a separate segment known as `BSE IndoNext' on the BOLT trading system of the BSE to create a national market for trading in the securities of small and mid cap companies.

Under this proposal, shares of small and mid cap companies with a paid-up capital up to Rs 20 crore listed and traded on the BSE and participating RSEs would be traded in a national market through a single order book on the BOLT system of the BSE.

The participating RSEs, may, however, decide to add securities of a company not listed with BSE with paid-up capital above Rs 20 crore.

The BSE and RSE members would be able to participate in trading in BSE IndoNext and the trading, settlement and risk management functions of this segment would be managed by BSE. However, since the `Z' group in the BSE comprises securities of non-compliant companies, these would not be listed under the new segment.

Dr Manoj Vaish and Mr Ramu Sharma said both the partners considered it as a major initiative since this would generate liquidity in the targeted companies and offer an exit route to the investors and would benefit the companies, investors and nearly 7,000 members of the RSEs spread across the country.

They also argued that the provision of a single order book at the national level for generating liquidity and utilisation of the infrastructure of the RSEs otherwise remaining idle by creating a model on the lines of Euronext had also been endorsed by the Kania Committee on Demutualisation.

They also drew attention to the view of the Committee that the two premier bourses in the country — BSE and NSE — may raise the minimum capital requirements for listing of the shares which would leave no option for small and mid cap companies to raise capital from the markets.

The proposed BSE IndoNext could fill this vacuum. Apart from providing the much-needed liquidity in such counters, the proposal would also lead to a balanced regional development and enhance the width and depth in the capital markets.

In the annexure to the proposal, the following stock exchanges were mentioned as having expressed their willingness to participate in the new national trading platform — the Stock Exchange, Ahmedabad, Bangalore Stock Exchange, Delhi Stock Exchange, Madras Stock Exchange, Hyderabad Stock Exchange, Inter-connected Stock Exchange of India, Jaipur Stock Exchange, the UP Stock Exchange, the Ludhiana Stock Exchange, Pune Stock Exchange, Saurashtra Kutch Stock Exchange, Vadodara Stock Exchange, Cochin Stock Exchange and Coimbatore Stock Exchange.

If any other RSE wished to join BSE IndoNext, it would be permitted as per the terms and conditions laid down for other participating RSEs.

The annexure gave a detailed presentation of the rules governing trading in the proposed platform.

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