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September 25, 1998


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The Rediff Business Interview/Joseph Massey

'Risk profile of ISE companies will be the best, investors will be safe'

Joseph Massey Come November, the country will have another stock exchange, the Inter-connected Stock Exchange of India Limited, located at Vashi in New Bombay. The ISE is promoted by as many as 15 regional stock exchanges -- those at Bangalore, Bhubaneshwar, Chennai, Cochin, Coimbatore, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Ludhiana, Mangalore, Magadh, Rajkot and Vadodara.

They hope to find a solution to plummeting trade volumes in the centralised, on-line, real-time scrip trading system. "If we don't come together now, we will perish later," says ISE managing director Joseph Massey.

The construction is over and interiors are being spruced up. Trial runs have already been completed. Massey overlooks the entire show. He is confident that the ISE will click. He argues that people from smaller towns and cities will trade on the ISE rather than the National Stock Exchange or the Bombay Stock Exchange because they would have to pay less brokerage.

In an interview with Special Correspondent Syed Firdaus Ashraf, Massey reveals his plans for the ISE.

What is the purpose of setting up the Inter-connected Stock Exchange?

Many smaller stock exchanges in smaller towns and cities are not doing well. So the basic objective is to give these stock exchanges a support service. And we think if we integrate these stock exchanges through the ISE, they will become liquid enough to support the retail investor in the local market. And moreover, this will help all the regional companies because they will get an access to the national market.

How different will it be from the National Stock Exchange and the Bombay Stock Exchange?

The NSE has gone in for a separate infrastructure for people to trade and it has one-to-one relationship with their members. As far as the BSE is concerned, it is trying to expand in different cities with the help of same existing members. But we are trying to network the existing marketplace and not trying to recreate anything new. It is something that we are restructuring, something which already exists.

When will you start functioning?

Construction work in progress at the stock exchange Probably, we will give a trial run on October 15 and will go live from the month of November. At present we are dependent on two things, one is the technical solution and the other thing is that we need permission from the Securities and Exchange Board of India. But, I think, if things go smooth, we will start functioning from the last week of November.

Why did you choose New Bombay for the central trading system?

The most important reason is that we have here a technological park. Besides that New Bombay has a lot of technological orientation. We thought there are already three exchanges in Bombay and by being present here we can solve our problems due to the proximity to Bombay city.

How does an investor benefit by trading on the ISE?

As I said, the liquid market has become illiquid for various reasons. An investor who has to buy or sell something has to go through two or three levels of intermediaries. Now each time there is an intermediary, there is an additional cost to the investor. Besides, the regulatory support is not available to him because he is dealing with the intermediaries. The advantage for trading in our stock exchange will be that the investor goes and trades in the same marketplace which is regulated by us. So, he is under one protective umbrella.

What is the safety available to an investor on the ISE?

The ISE would be guaranteeing every settlement liability. Size of the settlement guarantee fund and capital adequacy in relation to turnover and the risk profile of the companies is much better in the ISE than in any other stock exchange in India. The ISE is expected to have an SGF of a minimum of Rs 250 million.

What is the business potential of the ISE in the light of the NSE and BSE expanding their operations?

Other exchange members are expected to reach many cities but in fewer numbers in each city. Thus, the new exchanges would cater to the demands of the smaller cities and towns adjoining the existing stock exchange centres.

The other exchange members will find it difficult servicing the needs of the small investor in case of grievances, as their respective exchanges are far off. The investors will experience such lack of support and prefer to trade with a member whose operations are being regulated by one exchange only.

What is the project cost of the ISE and where would the money come from?

The ISE project cost would cost anything between Rs 130 million and 150 million. This money is going to come from the participating exchanges in the form of a contribution of Rs 10 million per exchange.

What is the source of income for the ISE?

The ISE will have three sources of revenue: one, interest income from the corpus on SGF which would be used only for the settlement guarantee purpose; two, annual fees and three, transaction charges to meet its recurring costs.

What are the benefits of the ISE to the regional exchanges?

The participating exchanges will be able to easily attract investors and order flows to the market on the combined strength of the inter-connected market system rather than their own independent small market. Liquidity at each exchange would improve with the increase in the number of participants in the combined market.

Don't you think it may be difficult to compete with the BSE and the NSE when the investors' sentiment is low? What is your view of the timing?

Joseph Massey You are right. This is not the right time for new issues to come out. However, if we take a long-term view, it makes sense. Although exchanges like Kanpur, Hyderabad and Baroda are doing well, there are other 7 or 8 exchanges which are not doing well for various reasons. So the ISE will benefit these loss-making exchanges. When you set up an infrastructure you have to take a long-term view. All these markets put together do a business of Rs 2.5 billion to Rs 3 billion. If they don't come together today, they will perish tomorrow. Because costs are increasing and volumes are low.

Why have smaller stock exchanges like Pune Stock Exchange not joined the ISE?

The offer is open to everyone. We are holding discussions. Fifteen have already decided, another 7 or 8 have been left out. Exchanges like Calcutta, Pune and others will take decisions soon. I think the market forces will drive them here.

How many companies will be listed on the ISE?

There are two categories. Firstly, we are talking about a permitted category. So all the companies listed in the country are eligible for trading here. Practically, all the 4,000 to 5,000 listed companies will be automatically listed here. But I will be able to give you the right figure only after three months.

Photographs: Jewella C Miranda


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