The Hindu : Central listing body for effective control

Online edition of India's National Newspaper
Monday, Dec 09, 2002

Business

Business

Central listing body for effective control

IS THE proposed central listing authority to be set up by the Securities and Exchange Board of India (SEBI) the beginning of the end for the regional stock exchanges in the country? Cynics will say `yes'. Optimists will, however, disagree. In an era of computerisation and connectivity, boundaries are inconsequential. The evolving globalisation context is rendering regionalism increasingly meaningless. Given this backdrop, the proposed central listing authority is in sync with the time.

What will this body achieve? Hopefully, such a nodal authority will bring about an effective control over the listing process. Not just that. It can facilitate a fair and uniform interpretation of norms pertaining to listing practices.

More often than not, new companies manage to get away with faulty listing practices at the regional level, thanks primarily to loose interpretations of guidelines by mandarins at regional stock exchanges. A case in point was the manner in which a leading corporate allegedly got its preferential shares listed twice based on a single EGM resolution.

The disclosure and investor protection (DIP) guidelines are often observed in their breach. It is common knowledge that on many an occasion regional exchanges have differing stands on the same issue. Not surprisingly, there are cases where one regional exchange allows the listing of a company shares while another refuses to do so.

The proposed central listing authority will precisely see the elimination of such a piquant situation. At present, the regional exchanges share a portion — one-fifth — of the listing fees with the market regulator. Once the central authority comes into being, it can collect the listing fees and apportion them to the regional exchanges on the basis of their trading volumes.

More than anything else, the central authority can facilitate simultaneous listing on all stock exchanges, saving, in the process, managerial time spent in queuing up before assorted exchanges for share listing. A direct fallout of the central authority could be the creation of a fair mechanism for redressing disputes.

This could still turn out to be an unfair solution. Notwithstanding the advantages of centralisation, there is an inherent limitation in such a system.

With a central authority situated afar, companies — especially smaller ones — could find the dispute resolution process unusually lengthy and costly. In such a situation, the regional exchanges could be sufficiently trained and empowered to act as extended arms of the proposed central authority. This could have twin benefits.

For one, the regional exchanges, which had their utility in former times, can still be made relevant. For another, it could bring about a modicum of decentralisation in the entire exercise. Still there is a danger of the regional exchanges getting completely marginalized by the proposed central clearing authority.

Why will companies go for listing on regional exchanges in the fast evolving context? If they prefer not to, the regional exchanges then will find the survival difficult.

Perhaps a way out can be found. Why can't the regulator bring in the concept of `No trading, no fee'. This, it is argued, will encourage corporates not to ignore the regional exchanges. The local exchanges, nevertheless, may have to discover better ways of finding funds for their running. Perhaps, they could think of a higher turnover fee from members.

Scope for central clearing corporation

The proposed central authority is welcome. Nonetheless, it needs to be accompanied by similar measures on other fronts as well. Apart from a central listing authority, there is the need for a similar clearing corporation.

Members of the regional and other stock exchanges can be allowed to act as its agents. This could facilitate clearance of trades on an all-India basis, subject, of course, to norms. This will also pave the way for the existing members of regional and other exchanges to trade on all-India basis. This should keep the regional stock exchanges, which had played a steller role in the development of the nation's economy in former times, in good health.

]As the supply chain management has already been established by these exchanges and their brokers, why can't these be tapped to benefit the investor?

Such a central clearing corporation could avoid frittering away the scarce resources of these regional exchanges which are often forced to spend heavily on software every time clearing rules are changed by the regulator.

K. T. Jagannathan

in Chennai

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