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Assocham asks for more stock exchanges to ensure wider participation of SMEs and retailers

February 28, 2010: In order to bring in greater competition in Securities market, more specifically capital markets, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has emphasised the need for creation of more "stock exchanges" to ensure wider participation of corporates particularly SMEs and retailers.

In this regard, the Chamber has demanded changes in guidelines of Securities and Exchange Board of India (SEBI) as regards to opening up of exchanges so that the proposed exchanges are created with no hurdles to ensure better price discovery to investors specifically retail investors with much lesser transaction costs.

In a representation addressed to Competition Commission of India by Secretary General ASSOCHAM, it is pointed out that the present position highly favoured and weighing in favor of National Stock Exchange (NSE). The NSE which commands 98% of turnover in futures and options and has about 70% in cash section needs to be countered with competition.

With a view to bring sufficient competition in the capital markets, the regional stock exchanges should be encouraged with fiscal benefits so that regional companies are attracted to be listed their for better price discovery and lower charges to investors. The suggested fiscal benefits can be in the form of concessional security transaction tax, exemptions from VAT as also Income-tax.

Therefore, the SMEs should be permitted to be listed in such regional stock exchanges after the suggested listing norms of SEBI for listing SMEs are further fine tuned to address concern for capital raising costs.

The currency derivative market in India is of recent origin. While NSE commenced trading in currency derivatives on 29th August 2008, MCX Stock Exchange which received recognition under SCR Act from SEBI on 18.9.2008, commenced trading in currency derivatives segment on 7th October 2008.

As a result of competition, the combined average daily turnover in these Exchanges in the currency derivatives segment has increased from Rs.24.20 billion in January 2009 to Rs.284.54 billion in January 2010. While the average daily turnover of MCX-SX increased from Rs.12.21 billion in January 2009 to Rs.146.17 billion in January 2010, the average daily turnover of NSE increased from Rs.12.00 billion to Rs.138.37 billion during the corresponding period. The better performance of entire segment is on account of the competitive environment prevailing in the currency derivatives. Such an environment is also required in the cash market for securities and for futures and options.

Assocham feels that there is urgent need to ensure greater competition among stock exchanges by government and the regulators with a view to providing greater benefits in the investing public and further developing the securities market. Stock exchanges need to be allowed to compete in a fair and equitable manner so that the welfare of the investing public can be maximised.

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