NEED FOR A TIE UP?

With companies moving abroad to raise money it makes sense to have a tie up. This would enable the local companies to have their primary listing in their domestic country and would save them from having multiple books of accounts and compliance. Example: Sterlite Industries listing in the LSE to raise capital.

The volumes will get a boost by a tie up with a foreign exchange. We have given below the turnover of major stock exchanges of the world. If the national stock exchange has a tie up with one of these exchanges the volumes will increase in the domestic exchange as well.

It is not possible for all eight thousand companies listed in India to list abroad. This is because of the stringent compliance rules, which cannot be complied by all these companies. If the companies can tap foreign markets without the stringent compliance, it would be easier for the companies to tap funds required for global expansion. Example could be a number of textile and pharmaceutical companies. Right now, if these companies have to go for ADR, they have to do a stringent compilation. In the case of tie-up, the regulations can be relaxed and they can issue the shares and can garner much-needed fund. Not only this, the listing of the firms across the stock exchanges will give them publicity in the larger run and may help them in the long run. It may happen then they no longer have to scout for other partners, as listing will give them easy publicity.

There will be an increase in the liquidity of the market. India is currently having a pool of around 40 million investors. It was 1.98 crores in 1998 but with our stock exchanges getting electronic and more real time prices coming up, the number of shareholder base has increase but still it is sufficiently small than what the stock exchanges in other countries have. In USA, more than 20% are the retail investors. In Hong Kong stock exchange, more than 30% are the retail investors. In Chicago and Australia stock exchange, the number of retail investor is significant too. Now coming up of the more retail investor into the market will increase the liquidity of the market. Not only this, the role of short seller may mitigate as well as speculators may also witness a decrease in their power. The number of companies will also increase but the proportion of retail investors will go up.

With the tie up of foreign exchanges in India the investing public will get a wider option for investing and more retail investors will be attracted towards the market.

Synergy between two exchanges. For instance the tie up between Johannesburg Stock Exchange and London Stock Exchange provides ample room for using each other's resources to improve their individual performance. This particular deal comprises the provision of core technology services by the LSE to the JSE and aims to achieve easier access to each other's markets for both member firms and issuers.
The JSE would also increase its revenue potential from data distribution and be able to retain its major listed firm The benefits for the LSE are that it would be able to diversify its portfolio of products.

The LSE is also expected to generate 11 million sterling extra revenue from the deal over five years.

With the capital account convertibility still not free, it will be a difficult problem as to how the transaction will work out. RBI works as a regulator and plays with the market exchange rates. As a result, there is a good chance that there may be a price manipulation only on account of the difference in the exchange rates. This issue needs to be sorted out.

The Indian markets are currently working on T+2 trading that will be very soon brought down to T+1 days as per SEBI. The problem is that across the world, different stock exchanges are having different trading days. As such tie-up of two stock exchanges with different trading days will cause problems.

Till now, the tie-up has taken place between those stock exchanges that are having it cycles of time. Imagine tie-p of the listing of the companies between NSE (India) and NYSE, and then suddenly some, collapse happens in the USA, then the people of USA will be in a comfortable position as they will be able to dispose of their shares quickly but people in India won't be able to and when they will be able to dispose off, probably by that time, there will be no value of the shares. This issue needs to be delved into.

The issue is of the merger and demerger of the company. If any company in India buys more than 15% of the shares of any other listed company directly or indirectly, the company has to make an open offer. Clarity needs to be sought as to how will these issue be tackled in this condition. Similarly, if any company buys more then threshold share of the Indian company listed in other stock exchange, it is to be well mentioned that which stock exchange will be having its regulation in this case.