The Hindu Business Line : Shed a tear or two for regional bourses

Some interesting developments in international markets point to the need to have strong regional trading hubs, which serve the needs of their local population.

THE Indian capital markets have virtually been reduced to a dual exchange duel. Investors have been conditioned and condemned to this concept.

In the bargain, liquidity in lesser-known shares and debentures has been bartered away. Promoters of dubious companies have left unsuspecting shareholders in the lurch. There is no one in sight to champion their cause or provide exemplary punishment to those promoters who have misused public funds for their own pecuniary benefit.

With the introduction of screen-based trading, derivatives and depository services, the authorities have given the open outcry system and the unique badla system a quiet burial. Forget the jobbers and underwriters of yore. They are now jobless and hawking mutual fund schemes at best.

The regional stock exchanges and their broker members who played a major role in the capital-raising exercise of small and medium sized companies have been reduced to fringe players struggling to make two ends meet in the face of dwindling listing fees over the years.

In such a scenario, it is almost fashionable to deride regional stock exchanges. Given half a chance, self-styled experts would readily write their epitaphs without a second thought. But do these small exchanges really deserve to be written off? Have they really outlived their utility?

We need to debate this seriously in the times ahead as on it depends the well-being of not only promising corporates who have limited resources to get noticed on the NSEs and the BSEs but also investors who need a much greater choice and freedom to invest in companies which have a strong regional bias.

Some interesting developments in international markets point to the need to have strong regional trading hubs, which serve the needs of their local population. These regional exchanges can still serve as a platform for region-based companies to raise their profile in the community.

New companies in high growth areas such as software services, business process outsourcing etc will be able to utilise these smaller exchanges as a first step on their odyssey to a major market listing (read NSE, BSE).

The overriding market objective of these regional stock exchanges will be to raise money directly from the community rather than by secondary market trading. It would be naïve to assume that shares of these small companies would offer the level of market activity necessary for regular buying and selling.

It is quite possible that investors would be attracted to the regional stock exchanges in their search for good dividend yields from long term investments in addition to capital appreciation. More significantly, the revival of these regional exchanges might facilitate a cultural shift in retail investors' expectations from established stock markets, as the smaller exchanges recirculate and regenerate wealth within the community.

In times of crisis, it is useful to look for inspiration elsewhere around the world. There are some useful lessons to draw from other markets. For instance, the UK will have a totally new regional stock exchange based in the West Midlands region by the end of 2004.

Supported by the development agency for the region, the local business exchange will focus on helping small and medium-sized companies to access finance to grow as well as encourage start-ups. A positive fallout of this development is that retail investors will be able to pursue investment opportunities in companies which are well-known in the community and hence have lower investment risks.

What is it, in the local context, which can spur our regional stock exchanges to find their own business models for survival? Let's face it: There is no simple `fits-all' solution. Each exchange has its strengths and capabilities which can be leverage upon with the assistance of local governments and business leaders.

For instance, Kolkata (although it does fall within the ambit or definition of a regional exchange having served as a market leader in its heydays) has traditionally been a thriving centre for jute, engineering and tea. In any survival plan, these industries will invariably play a pivotal role. And there is no dearth of entrepreneurial talent in this part of the country.

Surely, the Calcutta Stock Exchange can show the way to lesser stock exchanges and rise like the proverbial phoenix!

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