An Indian Stock Exchanges Services Corporation (ISESC) team, led by its managing director Joseph Massey was in Chennai recently to sell the concept of interconnectivity to the Madras Stock Exchange. He spoke with The Financial Express on the role of an inter-connected market system towards strengthening regional bourses. Excerpts from the interview:

Do the regional stock exchanges have a future ?I firmly believe that no exchange will get wiped out simply because NSE and BSE are expanding. In India, we have 50 million investors. Our capital market has not even started growing to the extent we are looking at. NSE reaching out to 200 centres with two brokers at each centre and BSE making trading centres available outside Mumbai cannot cater to the huge potential investors. Moreover, the goodwill built up by the exchanges, the distribution channel and sub-broking network cannot be replaced. Once the market improves all the exchanges will start doing well.

What is the need for inter-connectivity?

The prolonged bear phase has resulted in the investor keeping away from the stock market. Many brokers have also moved out and as a result the markets have become small. We wanted to create a critical mass that would retain the entire body together. This gave birth to the concept of inter-connectivity. By coming together the markets would be more efficient and have more depth, liquidity, transaction cost would come down etc.The regional markets would definitely fare better by joining ICMS than standing alone.

At what stage the project is in today?

We have got the in-principle approval of Sebi. We have got the consent of 12 exchanges and another four or five exchanges would join in a few months.Cost structures and funding strategies have been worked out. Technical solutions that are required have already been evaluated. We would be identifying the vendor in a month's time and hope to start operations by the end of the year.

What sort of investments are you looking at?

We are looking at a project cost of about Rs 10 crore to Rs 12 crore. The operational cost is estimated at about Rs 5 crore per annum. Various funding strategies have been worked out. The participating exchanges can contribute or members can pool in the money. Alternatively debt option can also be pursued with a minimal contribution from exchanges.

In terms of technology, each exchange is running on tailor-made software developed by different vendors. How are you going to integrate them?

The solution that we have identified has a very little vendor dependence.The central system software would be loaded on to the same terminal from which the broker is trading in the local exchange. The broker will now have the option of two screens one representing the local market and the other the inter-connected market. The system has a hardware element called gateway with intelligence built into it. This would help in channelising the local market trades into the local system and the ICMS trade into the inter-market system. The system we are looking at can take upto one lakh trades or four lakh orders per day.

How do you think you can take on NSE or BSE?

There is no question of taking on NSE or BSE. We are catering to small investors and mid-cap companies segment. Those segments which are not reached out by NSE and BSE. We are not looking at the institutionl business but at the retail business. We are only strenthening the regional exchanges that have been in existence for years.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.