Multiplicity of Stock Exchanges

Usually, stocks are listed on one major stock exchange in a given jurisdiction. For example, a U.S. stock will be listed either on the NYSE or NASDAQ. But, the position in India is different, perhaps for historical and other reasons, where not only there are multiple stock exchanges, but a number of companies are listed on more than one such exchange.

In an interesting column in the Business Standard, Pratip Kar argues that the economic relevance of multiple stock exchanges no longer exists. As Kar notes:

A congenital rather than acquired, idiosyncratic feature of the micro structure of our stock market is that the same security is permitted to be simultaneously listed and traded in more than one stock exchange. Our stock market also has the unique distinction of having the maximum number of stock exchanges in the world, registered with the market regulator — 22 to be precise. Of these, trading used to take place in four stock exchanges, the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE), the Calcutta Stock Exchange (CSE) and the Uttar Pradesh Stock Exchange (UPSE). But from 2005-06, trading in the CSE and the UPSE trickled to driblets, while the share of cash market trading volume of the BSE began to decline rapidly. … But winding up is unlikely to happen, because none of the stock exchanges would be agreeable to pay taxes on the proceeds of the winding up, and neither will the government agree to let go a few hundred crore of taxes.

He notes that “with the introduction of rolling settlement in 2001, and with the derivatives replacing the age-old badla, the differentiation was lost and so was the economic relevance of multiple stock exchanges”. This suggests that there may be merit in having only one or two stock exchanges, so long as that ensures efficiency.

Update – January 13, 2010: On a related note, Sandeep Parekh points to the difficulties created by caps on ownerships in Indian stock exchanges and the consequent governance issues that may give rise to.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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