The Hindu Business Line : ISE to seek BSE membership — Plans to develop `mid-cap index'

INTER-CONNECTED Stock Exchange of India Ltd (ISE) has decided to seek BSE membership to provide an additional trading avenue to its members who are now trading in the National Stock Exchange. ISE was originally promoted by the regional stock exchanges in the country to be developed into a third national stock exchange but could not reach that goal.

ISE, which achieved breakeven in 2002-03, has also seen its broking subsidiary, ISE Securities and Services Ltd (ISS), becoming profitable last year and is now looking at a range of services including depository services to brokers and investors, which it intends to take to a large number of towns in the country.

It is also working on the idea of developing a `mid-cap index' consisting of stocks of efficiently running small and medium companies that would offer it substantial business volume.

Speaking to Business Line here, Prof P.V. Narasimham, who recently took over as Chairman, ISE, Mumbai, said that the importance of an exchange was determined by its turnover and the new products it introduced. The premise on which the ISE was floated about five years ago as "more a solution" to the problems faced by the smaller exchanges would not "hold good" and said that model "is out." He attributed this to the BSE and NSE garnering a lion's share of the trading volume and the fact that some of the regional exchanges have formed their own subsidiaries.

He said the original premise that the 14 regional stock exchanges would form one combined entity that would work as a `third force,' was gone. The directors of ISE were discussing about its role. There were several intermediary functions that an exchange could play either directly or through its subsidiaries like broking. In fact the ISE has achieved a daily business turnover of about Rs 200 crore through trading in the NSE and within the next two years, he hoped the daily business volume would reach Rs 500 crore-Rs 550 crore which would bring substantial brokerage. He said this income itself was sufficient for the "exchange to be a viable, financially sound organisation."

He said ISE also has other plans like entry into the commodity exchange services, offering Depository Participant (DP) services by linking with both Central Depository Services of India Ltd (CDSL) and National Securities Depository Ltd (NSDL) and coming out with certain products that could be traded only in the ISE.

The ISE Managing Director, Mr V. Shankar, was in the process of identifying a new index for small and medium companies. While the two major exchanges concentrated on 30 to 50 large cap stocks, there was adequate room and there were enough smaller and medium companies that were efficient and doing well. If they could be exclusively researched and an index could be formed, there would be sufficient trading volume for the smaller exchanges. ISE, which had brokers in around 65 cities, was seeking to expand its reach so as to provide a cost effective trading platform to the investors spread across the country, he said.

Mr Narasimham said the ISE, which offered to its members a window to trade in the NSE through its subsidiary ISS, was seeking BSE membership so that its members could trade in both the premier exchanges of the country and hoped it would become operational in a month's time. It was also seeking permission to do client business since institutions like FIIs and FIs were the largest source of business.

Mr Shankar said ISE, for the first time, achieved financial breakeven during 2003-04 since its inception about five years back and had recovered not only its cash costs (operating costs) but also non-cash costs in terms of depreciation.

The net profit was approximately Rs 25 lakh and the total income was about Rs 3.5 crore. ISE's subsidiary ISS recorded an income of around Rs 5 crore and net profit of Rs 1.5 crore. For the first time, both ISE and ISS have shown net profit last year.

He said the five regional exchanges among ISE's promoters - Coimbatore, Patna, Guwahati, Mangalore and Bhubaneswar - were dependent on ISE's infrastructure for their trading.

Mr Narasimham inaugurated ISE's DP branch at the premises of the Coimbatore Stock Exchange on Friday. Mr S.S Thakur, Chairman, CDSL, was the chief guest.