SEBI permits Madras Stock Exchange to exit business

Market regulator, Securities and Exchange Board of India (SEBI) has passed an order providing exit to the 78-year old Madras Stock Exchange Limited (MSE). The exchange will be 14th Stock Exchange to exit under SEBI's exit policy, which came into effect in May 2012.

The policy mandated Regional Stock Exchange (RSEs) a minimum net-worth of Rs 100 crore and an annual trading of Rs 1,000 crore and gave two years to comply or exit the business.

In May 2014, MSE made a request to SEBI for its exit as a stock exchange after an Extra Ordinary General Meeting of the shareholders, a special resolution was passed for voluntary exit.

On Thursday, Rajeev Kumar Agarwal, whole time member, SEBI, passed an Order, in which he stated that from the valuation report and undertaking of MSE, it is observed that all the known liabilities have been brought out and there is no other future liability that is known as on date.

".....I note that MSE has substantially complied with the conditions contained in Exit Circular, 2012 subject to its undertakings. I, therefore, am of the view that it is a fit case to allow exit to MSE in terms of clause 8 of the Exit Circular, 2012," said Agarwal in the Order.

MSE is one of the oldest RSEs in India and has been one of the largest in terms of cash volumes in the 90s.

According to the Section 13 arrangement with National Stock Exchange (NSE), the collective turnover of the MSE listed companies which are trading at NSE platform, in 2012-13 was at around Rs 8,000 crore and this was expected to increase to Rs 19,907 crore in 2017-18.

Industry experts questioned about the future of small investors. They noted there were 250 companies, which are fully compliant and mostly MSMEs, while half of them have listed in NSEs and other exchanges, the balance didn't shift leaving small time investors, who have invested a few thousand rupees and to around 50 brokers who depend on this exchange for survival & livelihood?.

Since these companies have become unlisted there is no reverse book building process and prices of these companies have been quoted much below the price.

Taking advantage of the situation a private agency sent out a letter to the shareholders. One such letter, to buy shares of a Chennai based company is is available with Business Standard, stating that the company "is ready to make a best offer if the shareholder is wish to sell and please to make a best offer, if you wish to sell your holdings. We will send you payment by person. Kindly note that this offer is for a limited quantity of shares required by us. You therefore request to respond immediately to take our attractive offer and payment terms".

Insiders at MSE said prospect for the Exchange to survive was "very good" but SEBI's norms has "forced" MSE to exit. He claimed MSE can do trading volumes of around Rs 1,000 crore per annum, if the trading platform would have gone on stream.

Earlier senior officials from MSE said three major challenges it faces --upgradation of technology which is getting outdated fast, marketing and expansion and to meet SEBI's mandate. To meet these challenges, the Exchange can raise around Rs 100 crore from a Private Equity or through a private placement.

MSE had an in-principle tie-up with NSCCL for clearing and trading operations and EOI received from companies listed with MSE to trade on the new platform. In the last five years, collective trading volume of the 60 companies, which are listed in MSE and were allowed to trade on NSE, estimated to be around Rs 25,000 crore. The listed companies include well managed companies like TTK Healthcare, Amrutanjan, Lakshmi Mills and others.

In India, there were 20 RSEs, of which 14 have now applied to exit the business of stock exchange.

While the market watch dog SEBI's recent circular title 'Companies exclusively listed on De-recognised/Non-operational Stock Exchanges', gave some relaxation for those companies which are getting de-listed from the Regional Stock Exchanges (RSEs) to list in the National Stock Exchanges, industry experts is of the view that these relaxations will not help the companies unless otherwise they are more specific and binding on the national level stock exchanges.

They argue that the entry barriers are quite high for the MSMEs to get into the main board of the national level stock exchanges in terms of higher market capitalisation as well as the higher listing fees.

The listing fee should be considerably reduced in tandem with the size of the MSMEs & affordability and the entry barrier also be reduced substantially, without compromising on any other listing compliance.

Major challenges in listing in the SME exchange includes, equity issue, floating stocks, liquidity, compulsory market making and others.