The Securities and Exchange Board of India faces a tough task in protecting the interests of investors holding stocks that were previously listed on Regional Stock Exchanges (RSE). For, the dissemination boards (DB) set up to provide an exit to these shareholders has failed to deliver.

The regulator had given two options to the exclusively listed companies (ELC) of RSEs when the exchanges were shut — to obtain listing on any of the nation-wide stock exchanges, such as the BSE or the NSE, or to move to dissemination board that were set up on nation-wide stock exchanges.

The DB was supposed to provide a platform where buyers and sellers of these stocks could find each other.

Currently the dissemination board of NSE sports a list of 641 companies that were listed on the Ahmedabad, Madras, Uttar Pradesh and other RSEs. The dissemination board on the BSE has 1,659 stocks belonging to the Delhi, Vadodra, Gauhati and other stock exchanges.

Apart from these exclusively listed stocks, the dissemination boards also facilitates trading in 679 ‘vanishing companies,’ that were previously listed on RSEs.

Few transactions

But there are hardly any transactions taking place on the dissemination boards on the BSE and the NSE. While lack of awareness is one of the reasons, transacting on this platform is also very difficult.

MS Annamalai, an investor from Salem, who holds many plantation stocks that were previously traded on the Madras Stock Exchange says, “They put so many conditions for trading on the dissemination board that it was difficult to transact on it. For instance the minimum order size asked by my broker was too large.”

Further, the dissemination board is just a list of companies carried on the exchange website. The transactions take place beyond the exchange platform. The exchange does not guarantee the settlement of these transactions either.

Unfavourable buy-backs

According to Kaushik Mukherjee, Partner BMR Legal, making these stocks list on nation-wide stock exchanges will be very difficult as they will not be able to meet the listing requirements. Most of them are defunct companies that were not complying with the listing guidelines of the RSE on which they were listed. Demand for them were very weak even when they were traded on RSEs.

Buy-back snags

SEBI had asked companies unable to list on nation-wide exchanges to buy-back the shares from shareholders. But investors are unhappy with the price offered by some promoters to buy back shares.

A case in point is Schneider Electric President Systems, formerly listed on Pune Stock Exchange.

The company is offering to buy back the shares at ₹200. But investors feel that the exit price is not fair, as it does not take in to account the company’s improving financial performance in recent times.

Investors such as Annamalai are also not happy with the buyback offers made by companies such as Chembra Peak Estate and Thanjavur Spinning Mills.

The way out

Exchanges were asked by the SEBI to relax the listing requirements for companies formerly traded on the RSEs. But the NSE issued a circular last week increasing the capital and networth criteria for these companies.

With a stalemate on almost all fronts, what is the way out?

S Venkateswaran, former Director of Madras Stock Exchange, says that it would be good if the RSE stocks were traded in the permitted category of NSE and BSE for at least a year to allow a proper venue for transactions.

Another option, according to him, is to list the companies on the SME platforms of nation-wide exchanges.

Since the listing fee required by the nation-wide exchanges are high, SEBI can bear the cost, in the interest of the small investors.