Inter-Connected Stock Exchange of India (ISE)

Inter-Connected Stock Exchange of India (ISE)

With the setting up of the National Stock Exchange in 1994, a transformation of the Indian stock market was initiated. Automated screen-based trading, rolling settlement on T + 2 cycle, dematerialisation of securities with electronic transfer of securities, etc. completely transformed the market structures and procedures. Gradually, the two national stock exchanges, BSE and NSE dominated the scene with practically all trading being routed through either of these exchanges. The regional stock exchanges became irrelevant as they could not compete with the breadth and depth of these two stock exchanges, and there was virtually no trading at any of the nineteen regional centres.

The members of the regional stock exchanges of the country started investing large amounts of money in automating their trading, clearing and settlement systems on account of regulatory compulsions. This situation prompted the regional stock exchanges to devise some way of reviving their fortunes. It was decided to evolve an ipter-connected market system by pooling the resources of the regional stock exchanges. Fourteen regional stock exchanges (excluding Calcutta, Delhi, Ahmedabad, Ludhiana and Pune stock exchanges) joined together and promoted a new organisation called Inter-connected Stock Exchange of India Ltd. (ISE) in 1998. The ISE was recognised as a stock exchange by SEBI and it commenced trading in February, 1999. It then began to function as a national level stock exchange.

The objective of setting up ISE was to optimally utilise the existing infrastructure and other resources of participating stock exchanges which were until now underutilised. The ISE aims to provide cost-effective trading linkage/ connectivity to all the members of the participating exchanges on a national level. This will help to widen the market for the securities listed on the regional stock exchanges.

Through ISE an attempt is made to make the regional markets vibrant and liquid through the use of the state of the art technology and networking. The trading settlement and funds transfer operations of the ISE are completely automated. However, ISE has not succeeded in becoming a competitive market force to BSE and NSE. This is mainly because the participating regional stock exchanges did not close down their regional segments.

At present there are twenty-three stock exchanges in the country. Four of them can be considered as national level exchanges, namely, NSE, BSE, OTCEI and ISE; the remaining nineteen are regional stock exchanges (RSEs) located in important cities of the country. But it may be noted that most of the trading in securities in the country are transacted through the two largest stock exchanges, namely the National Stock Exchange (NSE) and the Stock Exchange, Mumbai (BSE) which have trading terminals all over the country. Even in these exchanges, even though there are a large number of companies listed, active daily trading takes place only in the securities of a limited number of companies. The large volume of trading is accounted for by limited number of securities. For the vast majority of securities of listed companies, the stock exchanges fail to provide liquidity.