SEBI exit policy for de-recognised or non-operational exchanges

Kochi will soon be deprived of its stock exchange. The Cochin Stock Exchange (CSE) is in the process of being derecognised by the Securities and Exchange Board of India (SEBI). The CSE will lose the ‘exchange’ status and a new entity will emerge after SEBI gives clearance to the proposal.

The change in nomenclature and associated functions has been necessitated after SEBI issued a circular to regional stock exchanges across the country under an exit policy for de-recognised or non-operational stock exchanges. Accordingly, stock exchanges where the annual trading turnover on its own platform is less than Rs.1,000 crore can apply to SEBI for voluntary surrender of recognition and exit.

The circular says: “If the stock exchange is not able to achieve the prescribed turnover of Rs.1,000 crore on a continuous basis or does not apply for voluntary surrender of recognition and exit, SEBI shall proceed with compulsory de-recognition and exit of such stock exchanges.”

The CSE will have to comply with the SEBI norms to retain its status, but the director board of the exchange has chosen the exit route. SEBI has already begun the procedures to ascertain the assets of the local exchange as up to 20 per cent of its assets would have to be deposited with the regulating agency to meet any future claims from investors.

In 1978

Incorporated in 1978, the regional exchange was active initially, but with the technology taking rapid strides, the trading platform underwent revolutionary changes and the territorial restrictions for listing of companies in the local exchange became redundant. Several members of the CSE enrolled themselves as sub-brokers of the National Stock Exchange (NSE).

It meant that investors got access to the Bombay Stock exchange (BSE) or the NSE at the CSE, which was a subsidiary of the BSE.

Mathew Thomas, Director, CSE, says compliance with SEBI guidelines will mean spending Rs.10 crore to Rs.20 crore for upgrading the software and accessories. The business volumes should justify this huge investment in infrastructure. “The exit route was chosen as there were doubts about realising such business,” he says.

C.J. George, head of Geojit BNP Paribas, a noted entity in the share broking field, says the advance in technology for stock trading has made the role of the CSE insignificant. Sub-brokers has access to wider trading avenues. But the CSE has played an important role in raising the capital of Kerala-based industries. The members of the CSE and the brokers associated with them had helped raise capital through their contacts in the past. The absence of the exchange will adversely affect Kerala-based companies opting for initial public offer, he said.

S. Menon, head of Shreekumar and Company, engaged in securities business, says technology plays a crucial role in making regional stock exchanges redundant. The trading at the CSE had stopped about a decade ago, but it was getting annual fee associated with listing that used to be done through regional exchanges in the past, Mr. Menon says.

There is every possibility for the new entity, sans the exchange in the nomenclature, to continue to function as a holding company for Cochin Stock Brokers Ltd., the present subsidiary of CSE. Hyderabad and Bangalore regional exchanges had also opted for the exit. The new measure will usher in a level-playing field, he says.

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