Don't let the name fool you. Success Chambers in Pune's posh Deccan Gym area has seen better days. A decade ago, the building that houses prominent stock broking outfits of this bustling city, used to see long queues of investors trying desperately to get a broker to buy or sell shares for them. So much so that the Pune Stock Exchange (PSE) even rented a major portion of a government-owned building near the aptly named Success Chambers.

FALLING SHARE The 22 regional bourses accounted for a third of the total trading turnover in 1996-97. They now control only 4 per cent.

Ten years later, J.N. Gupta, a former president of the bourse, prefers to recount his days at the G.D. Birla Group company Century Enka. Ask him about the PSE and Gupta, 74, passes on the query to his son Vinod, also a former president of the exchange. "We used to do business of about Rs 5 crore per day," says Vinod. "Now it doesn't even touch Rs 10 lakh a day." And that too is done through other exchanges like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). The PSE, its turnover down from Rs 6,000 crore in 2000-1 to zero in 2002-3, has moved back to its original location inside a building sandwiched between two shops in a busy market.

Once a symbol of economic power, the 22 regional stock exchanges in India are inching towards death, burying investments worth crores of rupees in infrastructure and real estate. The introduction of computerised trading and the spread of the trading networks of the two biggest exchanges-the NSE and the BSE-to other parts of the country have dried up the flow of business to these regional stock exchanges. Between 1996-97 and 2001-2, NSE's turnover grew from Rs 3,36,000 crore to Rs 15,62,000 crore and that of BSE rose from Rs 1,24,000 crore to Rs 3,09,000 crore. During the same period, the combined turnover of all the other stock exchanges in the country slumped from Rs 2,28,000 crore to Rs 77,000 crore (see graphic).

This is not the only factor of the impending demise. In February this year, the Securities and Exchange Board of India (SEBI) allowed companies to delist from regional stock exchanges. Till then, companies had to compulsorily remain listed at the stock exchange closest to their registered office. In most cases, companies paid hefty listing fees to exchanges even though not a single share was traded on the bourse. This income from listing fees had ensured the survival of many regional exchanges even though their turnover was zero. In 2000-1, listing fees accounted for Rs 44 crore-or more than 50 per cent-of the total income of exchanges other than the BSE and NSE. Last week, the Finance Ministry endorsed SEBI's decision, taking off the life-support system of the small exchanges. A host of companies, including MRPL, Kotak Mahindra, Nicco Corporation and DSQ Biotech, has already announced plans to delist from regional exchanges. The board of Bharti TeleVentures Ltd, which has paid the DSE Rs 60 lakh as listing fee for three years, has given the nod for delisting from the bourse.

This flood of divorce petitions is a far cry from the days when state governments believed that having a stock exchange was more important than having a power plant. This led to the setting up of multiple stock exchanges. India is the only country in the world to have several stock exchanges. It is not that they were not needed, though. Till NSE introduced nationwide computerised trading in the mid-1990s, physical proximity to investors was crucial. Companies of the region too preferred to locate near the stock exchange so that they could handle shareholder complaints and get the pulse of the market from brokers.

BARELY AFLOAT: CSE's volumes have dropped 98 per cent in the past two years

The decision to allow companies to delist from regional stock exchanges didn't come a day too early. Regional exchanges have been hotbeds of scams in the past. The Calcutta Stock Exchange (CSE), for instance, was a haven for the carryforward market that spawned the Ketan Parekh scam in 2001. The carryforward system led to a huge payment crisis at the bourse. In 2002, the PSE was the epicentre of the Home Trade scam. The stock exchange had listed the company without adequately checking out its background. Last week, SEBI suspended the governing board of the PSE for this lapse and other irregularities.

At Bharat Bhushan Sahny's office in Delhi's busy Connaught Place area, there are several computer terminals but not one of them is switched on. If Sahny, 60, a former president of the Delhi Stock Exchange (DSE), doesn't have any staff it is because he does not need any. From a daily turnover of around Rs 5-10 crore some years ago, his broking business is now down to a mere Rs 25-50 lakh. And here too, the NSE has elbowed the local exchange out of the reckoning. DSE's daily turnover has shrunk from about Rs 1,000 crore in 1999-2000 to almost zero now. The exchange has moved out of the rented premises in the Indira Gandhi Indoor Stadium to its own building in old Delhi while its Rs 25 crore investment in online trading facilities is gathering dust.

Ditto for the CSE on Lyons Range. The bourse seems to have travelled back in time. The daily trading volume, which was more than Rs 2,000 crore till last year, hardly crosses Rs 30 crore these days. A former vice-president of the stock exchange now holds evening tutorial classes for commerce students in his chamber. An incumbent director spends his day at an online counter close by. "The stock exchange seems to have been impoverished beyond repair," says P.K. Sarkar, who held the post of executive director till recently.

The drying up of business in the regional stock exchanges does not, however, mean a fall in trading. It only means that a large chunk of their business has now shifted to other stock exchanges, particularly the NSE. The worry is: will this growing dominance turn the NSE into a hegemonic monopoly that will make the market dance to its tune? These fears are not unfounded. The NSE, which has grown phenomenally since its launch in 1994, is now the biggest bourse in India in terms of both reach and volume of business, controlling almost 100 per cent share of the derivatives and debt markets and over 60 per cent of the equity market.

There is another problem. The NSE trades in only 800 large stocks and if the smaller exchanges crumble, investors in hundreds of medium and small companies listed at regional bourses may have nowhere to go. NSE listing norms require an existing company to have an equity capital of at least Rs 10 crore and a minimum market capitalisation of Rs 25 crore. Says NSE Managing Director Ravi Narain: "We are planning to set up a platform for medium and smaller companies. The key is to find a way to evoke greater trading interest in these companies."

Ironically, the only hope for the regional stock exchanges comes from the NSE and the BSE. Two years ago, SEBI allowed the smaller exchanges and their members to become brokers of larger exchanges. It asked the exchanges to float subsidiaries that could become broking members and their own brokers would function as sub-brokers.This is also cost effective and brokers like Gupta can now do business at NSE by paying only Rs 12 lakh instead of over Rs 1 crore for a full-fledged membership of the bourse. Most of the brokers of smaller exchanges are now trading through the bigger bourses.

The only problem is that the onus of meeting financial obligations is with the broking member-in this case, the regional stock exchange. With their financial position in a mess, there is a big question mark on how long this model will work. Moreover, there is a big risk involved because even if one member defaults on payment or delivery, it will have a domino effect.

When the NSE was launched, many of the regional exchanges pooh-poohed its computerisation drive. "Even when we offered them our trading systems they refused," says NSE's founding managing director R.H. Patil. When they finally bowed down to the SEBI diktat to introduce online trading, the NSE had already rendered them irrelevant.

Brokers at smaller stock exchanges are also resisting moves to corporatise the bourses, sell their assets, get the one-time tax waiver announced in this year's Union budget and dissolve the exchanges. Though it sounds logical, the problem is that if these bourses cease to be stock exchanges then the facility to trade at the NSE and the BSE would also be withdrawn. That is something brokers don't want. Besides, the highly unionised staff of the exchanges will not allow liquidation without a lengthy legal battle.

Some exchanges are, therefore, exploring new avenues like commodity trading. "We could focus on trading in turmeric which is widely grown in Sangli," says Gupta. But here too, they may have missed the bus. The NSE has already made considerable progress in this direction and is close to launching a nationwide electronic-commodity trading market. Its width and depth will certainly make it a better option compared with a smaller exchange with just five or six commodities on offer.

Technological advances and their own shortcomings have robbed the regional stock exchanges of their relevance. They are unable to provide liquidity to investors and have failed miserably to protect their interests. With the NSE juggernaut on the roll, these exchanges are fast running out of options. Since the 2001 Ketan Parekh scam, the market regulator has come down hard on these exchanges, suspending several governing boards but stopping short of cancelling their licences. It looks like it will be a painful death.