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Abhrajit Gangopadhyay

Following demutualisation, the stock exchange is likely to be clubbed with its subsidiary, BgSE Financials Ltd, through a reverse merger.

BANGALORE, Dec. 2

THE struggling Bangalore Stock Exchange (BgSE) has approached leading investment bankers to value the company following market watchdog, Securities and Exchange Board of India (SEBI's), directive on corporatisation and demutualisation of stock exchanges. An external evaluator will be announced within "one to two weeks".

"Demutualisation is on top of our agenda and we are evaluating certain options", the Executive Director, BgSE, Ms K. Kamala said. Following demutualisation, the stock exchange is likely to be clubbed with its subsidiary, BgSE Financials Ltd, through a reverse merger. "We have to take actions quickly," Ms Kamala said.

Earlier, SEBI had sought `certain clarifications on legal issues' on the proposed reverse merger of the subsidiary.

On November 29, SEBI laid a roadmap to convert all exchanges into companies limited by shares and changing their character to profit-motivated entity from the current non-profit structure.

The Income Tax Act will have to be amended if necessary so that the past profits of a stock exchange which were not taxed when it had the character of a non - profit entity, should not be taxed when the character of the entity changes. The reserves could be taxed in the hands of the shareholders, at the net applicable tax rates, when these are distributed as dividends. All future profits of the exchanges would be taxed.

"We would like to avail of the income tax benefit", Ms Kamala said, stressing the need for a speedy demutualisation procedure for the exchange.

Shrinking volumes following the ban on short selling coupled with T+3 payment regime have forced most of the brokers registered with the BgSE to migrate to its subsidiary institutional broking house, BgSE Financials. Trading has come almost to a standstill from an average of daily volume of Rs 50-Rs 70 crore a year ago.

Most of the brokers registered with the regional exchange now trade through BgSE Financial, that is a registered member of the National Stock Exchange.

Meanwhile, the bourse has started to act as a clearing member of the NSE for derivative trading and subsequently handles clearing operations for external agents nationally.

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