The Madras Stock Exchange could improve access to credit for small and medium enterprises
The Madras Stock Exchange was set up in 1937. It celebrated its 75th ?anniversary recently. Many large Chennai-based businesses such as the TVS group, Ashok Leyland, India Cements, Madras Cements, Amrutanjan and others raised finance through the MSE. One of the oldest regional exchanges in the country, ?MSE started fading around the mid-nineties and became inactive in 2005. This is the story of many regional SEs, all of which became irrelevant when trading terminals of the NSE and BSE went nationwide. Of the 19 regional stock exchanges in India, five are no longer recognised by Sebi.
There is now serious talk of reviving the MSE. Its members are working on a turnaround plan to reactivate its trading activities. V Nagappan, member of the advisory committee, of MSE, notes that the exchange has entered into an arrangement with the NSE that shall allow MSE ?members to trade on NSE?s platform. Already 60 companies have been included for trading on the NSE platform and more companies will be covered. According to S Venkateswaran, Director of MSE, there are 1,150 companies listed on the exchange. Out of these, 600 are not listed on the NSE or BSE. With the revival of the MSE trading platform, shareholders in these unlisted companies will have access to liquidity for their holdings.
In 2005, Sebi allowed exchanges to demutualise, which meant that corporates were allowed to become members. At present, companies like Polaris, Orchid, Aban group and Kalpathi Investments, hold 64% share in the exchange, while the rest is held by trading members of the exchange. ?This has brought in a lot of professionalism to the exchange. Sebi has recently announced new norms for stock exchanges. They should have a minimum net worth of R100 crore and should have annual trading volumes of R1,000 crore. If an exchange is not able to achieve the required turnover on a continuous basis and does not apply for voluntary de-recognition, the regulator shall proceed with compulsory de-recognition and expulsion of such a stock exchange.
MSE members say that the exchange can achieve this easily. Last year it had a turnover of R9,479 crore from 60 scrips. Nagappan is convinced that small and medium enterprises have a need for smaller exchanges. Those who have to raise sums below R25 crore have nobody to turn to. First-gen entrepreneurs usually have no assets to pledge. The financial institutions no longer aggressively fund the new-gen entrepreneurs as they have faced problems with recovering their money. They also find it difficult to disinvest these shares. Although an SME exchange has been set up, there are too many restrictions that prevent people from approaching it. Exchanges like the ?MSE can fill the gap between large companies and SMEs. The larger groups can register their smaller subsidiaries in the MSE.
?If a successful textile retailer with a R100 crore turnover wants to go public, he doesn?t have to go to Mumbai. He can do it from where his showroom is located. We cannot compete with large exchanges. MSE will be a hub and spoke model.? The MSE board is confident that proper corporate governance norms will be followed by the exchange. The profile of directors has changed ever since the larger groups entered the exchange in 2008. Section 13 agreement of Sebi, which allows companies listed in MSE to be listed in the national exchanges is the most helpful for regional exchanges. Smaller brokers will have direct access to NSE. Earlier R1 crore was required to register with national exchanges. Now brokers can enter with R5-15 lakh. Nagappan feels that small brokers are like family doctors. They are always in touch with investors. ?There is the belief that small scrips registered in smaller exchanges let down small and retail investors, and they lose heavily. This is not quite true. Take the case of large issues like Pentamedia, DSQ or Silverline. They collapsed and investors lost a great deal. MSE hopes to bring in smaller companies from tier 2 and 3 cities, which find it difficult to raise funds beyond a point. The plan is to list about 15 companies whose turnover exceeds R60 crore in the national exchanges each year ?and bring in 15 new companies to hand hold. ?What we are hoping to be is an alternative exchange like the Nordic exchanges. We won?t compromise on any regulation.?
According to D Sudhakar Reddy, a shareholder Director of the MSE, the exchange is exploring the possibility of consolidation through merger of like-minded regional stock exchanges. Those who have shown interest are Madhya Pradesh, Pune and Bangalore. The reason for other stock exchanges to show interest in merging with the MSE is that the exchange has complied with all regulatory norms, and its trading platform is ready. Unless the platform is ready and approved by Sebi, transactions cannot commence. To develop the platform MSE has already invested around R2-2.5 crore, and the exchanges merging with MSE need not invest this amount. The platform has to have a call- auction software and must incorporate all the by-laws. MSE has already procured the requisite hardware and software for this purpose and has loaded disaster-recovery sites.There are those who feel Sebi is not really interested in reviving regional exchanges. It has just been dragging its feet for the last 4 or 5 years on approving the trading platform and allowing the existing exchanges to die a painful death. Sebi is also bordering on idealism when trying to bring SMEs into a trading system that has its own set of problems. They feel, it will be more sensible to create niche areas like a debt-market platform. Members like Nagappan are sure that approval is around the corner. If Sebi does approve the platform as soon as they hope, the cynics will be proved wrong.
sushila.ravindranath@expressindia.com
