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Sebi and CCI okay country’s first merger of exchanges

Market regulator Securities and Exchange Board (Sebi) and fair trade watchdog Competition Commission (CCI) have approved the merger of United Stock Exchange of India (USI) with the Bombay Stock Exchange (BSE), making it the first merger of two exchanges in the country, the premier bourse said on Monday. For the merger to go ahead, however, the exchanges will have to secure the approval from the Bombay High Court as well where the proposal is pending. The merger of the struggling currency bourse USE will see BSE adding its 27 state-run banks and some private and foreign banks as its shareholders. The BSE is already the single largest shareholder in USE with 15 per cent stake.

The move will boost BSE’s own currency trading business, which has seen massive spike in recent months following the introduction of faster technologies following which the oldest bourse in Asia massively narrowed the market share gap on the currency front with the NSE. This May, the BSE board had approved the merger of the struggling USE with itself.

The USE has been facing dwindling volumes and erosion of net worth. Markets watchdog Sebi rules say an exchange should have a networth of Rs 100 crore at all times. But USE’s networth has been eroding and it may not be able to sustain this above the threshold limit beyond a few quarters.

As per a financial statement issued by USE, at end-December 2013, its networth stood at Rs 118.13 crore. According to sources, the deal is likely to be structured through a share swap, which is likely to be 1:385, which means USE shareholders will get one BSE stock for 385 of their stock. The deal will be effective April 1. The BSE has not said anything about the deal details.

The BSE board has valued USE at Rs 150 crore and itself at Rs 4,000 crore, the exchange spokesman had said in May. USE, promoted by the Jaypee Group, created a record by registering a turnover of Rs 45,486 crore on its inaugural day in 2010. Since then, its volume has been plunging due to competition and lack of infrastructure.

The BSE is a corporatised and demutualised exchange, with a broad shareholder-base, which includes two leading global exchanges, Deutsche Bourse and Singapore Exchange as strategic partners. With over 5,400 listed companies, the BSE is the world’s largest exchange in terms of listed companies.
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