So, India’s premier bourse, the NSE, has not committed a fraud in the co-location imbroglio. However, it is guilty of not exercising due diligence in the scam, found a SEBI probe. Hence, the regulator has ordered the NSE to pay a fine of ₹625 crore plus 12 per cent (for five years) interest.

Besides, the NSE has been barred from accessing the capital market in terms of public issue and launching new products for six months.

The market regulator also found former NSE managing directors — Ravi Narain and Chitra Ramkrishna — guilty in the case and prohibited both from associating with listed company/market infrastructure for three years and ordered Narain to pay 25 per cent of his salary drawn for the period FY11 to FY13 and Ramkrishna 25 per cent of FY14 salary to the investor protection fund.

Prudent alternative

The probe by SEBI may have given a clean chit to the NSE on fraudulent practice, but the common perception among investors and market experts is that all is not hunky-dory. This unfortunate episode has highlighted the need for more stock exchanges that could usher in healthy competition in the exchange business.

After all, for those who are still sceptical of the exchange’s conduct and are not satisfied with the outcome, what are the alternatives?

Apart from the NSE, the BSE is the only option as the MSEI (Metropolitan Stock Exchange of India erstwhile MCX-SX) is yet to see meaningful trading activity. There was a time when India had 23 stock exchanges that included the Delhi Stock Exchange, Calcutta Stock Exchange, Madras Stock Exchange, OTCEI and the Ahmedabad Stock Exchange.

Most of them were powerful players, attracting big and widely known companies in their regions for listing. Put together, over 9,500 companies were listed on these 23 stock exchanges across the country till 2002.

With the technological revolution, the BSE and the NSE expanded across the country and made the regional bourses less relevant. Besides, drop in trading volumes, SEBI’s diktat in 2012 for stock exchanges to have a minimum net worth of ₹100 crore and an annual trading of ₹1,000 crore forced most of them to exit the business. Just last week, SEBI allowed Magadh Stock Exchange to exit the business.

But the NSE case highlights that this may be the right time to have more stock exchanges. Reviving the regional stock exchanges could be an option, but that is very difficult. However, SEBI could give an impartial hearing to older stock exchange players who are interested in reviving their fortunes altogether in a new avatar. Some of the old players could also consider joining hands, to take on the two big players.

SEBI could also entertain or invite new players to start stock trading business, especially as inter-operability in clearing and settlement is set to kick in from June.

Broader retail participation

Why can’t government-owned institutions with high brand value such as LIC and India Post, with over 1.55 lakh post offices and the most widely distributed postal network in the world, promote a new stock exchange and throw their hat into the ring? If that happens it will also ensure broader retail participation in the stock market and financial inclusion of the Indian public.

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