The CSE trading ring: Putting a 'buy' on hope

Lonesome and laconic, Girdhari, 70, wonders whether he might not be better off in his native Jharkhand. "Abhi to parking ka bhi koi samasya nahi hai (There isn't even a parking problem now)," sighs Girdhari. "Sub broker log bhi chala gaya. Chaat kaun khayega? (Even the sub brokers have left. Who will eat chaat?

After 35 years, Girdhari's little snacks stall can no longer bask in the glory of what was once one of India's premier bourses. Sevanti Lal Shah, also 70, was one the brokers who spent his life crying himself hoarse below the ornate gallery in the trading hall of Lyons Range, as the Calcutta Stock Exchange is popularly known after the street on which it stands. Today, you're likely to find Shah-once the CSE's equivalent of Mumbai's famed market operator Manu Manek-playing cards with his wife. The last time he had anything to do with the Exchange was last summer, when he stepped in to arrange some money for his old haunt, reeling under a payments crisis with defaults in the region of Rs 200 crore threatening its existence. Dapper and precise, Shah does not hide his disgust at the way the 94-year-old institution is run.

THE BIG SLIDE

A great city, a great bourse---one

The slide of Lyons Range began late in the 1980s as the fortunes of old family groups like B.K. Birla and R.P. Goenka waned. Early next decade the old boxwallah companies like ICI, Dunlop, Shaw Wallace and Bata lost their pre-eminence. Kolkata's decline as a business destination only hastened the fall. 1992 Harshad Mehta scam singes the exchange. 1996 Salad days of IPOs are over. Volumes start going down. NSE in full flow. Investors trade online and look towards Mumbai. 2000 Badla comes under scanner. Brokers find it difficult to honour deals. Slowdown in investment. 2001 Unprecedented payment crisis in May as K 10 stocks plummet. In July badla is banned, no rolling settlement. Most brokers default on margin money. 2002 In March a new CSE committee is set up, with a stress on transparency.

It's hard to believe that as late as 1996 the CSE boasted volumes to challenge Mumbai. Its decline is a case study of how not to adapt to changing times. In that the CSE is much like the city around it. The remission of the outcry system, the introduction of online trading and the emergence of the National Stock Exchange (NSE) have all been shocks to the men at 8 Lyons Range.

In the early nineties CSE accounted for at least 30 per cent of daily volumes traded on a national basis. Today it is only around 8 per cent. Annual turnover of the exchange peaked at around Rs 1,78,779 crore in 1997-98, and has dropped every year since. Unofficial figures suggest a turnover of Rs 1,47,000 crore this year. "Sad, but true-the exchange is in need for a drastic overall change and unless the medicine is administered quickly, there will be very little to cheer," says K.P. Ray executive director of the CSE.

Children of the Satellite Terminal

Formally incorporated with 150 members in 1908, the CSE began trading in loan securities as early as 1836, the first Indian exchange to do so. The desolate paan-stained, narrow passageways reek of stagnation. The big names-Kayans, Parekhs, Shahs, Sonthalias, Ajmeras-have shifted premises. And with it, their interests. The CSE card they retain is for academic, or at times, sentimental reasons. The Lyons Range's children now actually trade on the NSE and BSE.

"The NSE is where the action is," says Amitabh Sonthalia, 30, who went to college in North Carolina, USA. "The new trading options and with it a faster and certainly more transparent system is clearly to our advantage." This disassociation with the bourse of his fathers, caused Sonthalia to move the offices of Sonthalia Securities from the dingy Suta Patti (near the CSE) to plush, yuppy Lansdowne Road in South Central Calcutta. "We realised as early as 1999 that the only thing going on at CSE was arbitrage for a couple of Bombay brokers. If we are to depend on Bombay for returns, then why not trade directly?" It makes sense of course.

Sonthalia belongs to a generation that has not seen the city of joy in the fifties and was far too young to remember the reverence that Basant Birla and his brothers or Rama Goenka and his family commanded at the stock exchange. Tata Ordinary (as Tisco was then known) Hindustan Motors, Texmaco, Bata, ICI, and Dunlop were the blue chips that ruled the exchange.

Then in 1974 came the Foreign Exchange Regulation Act (FERA) and with it, the dilution of stake in a bunch of blue-chip companies. The buyers, the marwari clans of Kolkata. "It was the time when the city was home to a number of boxwallah companies (the old colonial companies), and almost every high-net-worth individual wanted a piece of action in say ICI or Dunlop", says Amal Basu, 69, of G.M. Bosu and Sons, a 40-year-old broking firm. But as the city's jute and engineering companies went into decline, so did the relevance of the families owning them.

The emergence of the tech stocks and the incredible force of Ambanis, Essars and others of their ilk in the new equity cult gave the first impetus to Mumbai and Ahmedabad. Kolkata played a key role, but it wasn't home to the key stocks. The fortunes of boxwallah companies, too, declined in the stock market. What was worn-out, old Kolkata to know of the new age?

Old-timers say CSE's greatest failing is that it's lost its combative spirit and its members, their old sense of belonging. "In our younger days we saw our fathers take great pride in CSE," says J.M. Chowdhary, 64, a former CSE president. "If a local company's share was under threat, every one would rally around. That's history now." B.K. Birla had to call in a whole host of favours last year to ensure a Dubai-based NRI did not wrest control of his flagship Kesoram Industries. The local brokers were hardly enthusiastic. The difference in attitude is palpable. The CSE raises no special emotion to new-generation brokers like Himanshu Ajmera, 40, Director, Accord Capital Markets Ltd. This is just business, he says, dismissing the old ways. "The chalta hai culture has gone on for too long."

Not keeping up with the times and being transparent has cost the CSE dearly: as trust fell by the wayside, the old system lead to large payment defaults. The CSE broker has traditionally not been hugely cash rich, so it was the badla operator who came to his aid when he came up short during the settlement period. Of course, the broker was far freer to trade and was not always bothered by keeping up his margins. Today, the high margins (nearly 30 per cent of his exposure on a particular day) keep him away. This has brought a set of brokers who play the Mumbai Game. Dinesh Singhania, 48, and Ashok Poddar, 45, led the cartel that took to K 10 stocks and caused the last major payment crisis on the CSE last May, nearly taking down the exchange with them. That's when old warhorse Shah stepped in.

CSE's murkiness today is one of the key obstacles in any revival plan. "The transparency has been missing for too long, and there is a serious crisis of investor confidence," admits CSE Vice President Vivek Mahajan. "It is showing in the dwindling number of retail investors." Honouring a gentleman trader's word was once the CSE's strength. It is today its greatest weakness. "The gentlemen whose word was sacrosanct are missing and so is the trust," says Mahajan, 45. Members like Gauri Shankar Kayan, 73, and Shyam Sundar Dalmiya, 70, are not in the exchange any more. "These were men who could trade in crores with a verbal agreement" says D.P. Poddar, 67, of D.P. Poddar and Co. There was no terminal to lock a trade, only a parcha (slip of paper) that was settled on the day of the delivery.

Mahajan is trying his best to make the 250 members understand the need to start taking a new look at trading instruments. At last count only about 20-odd members of the exchange had any serious exposure to derivatives trading. There are plans: a large financial complex in Salt Lake in the eastern fringes of Kolkata, and with it, a whole new CSE. But not a brick has been laid in eight years. And so today an institution that boasts 3,500 listed companies is empty. No one shows up to look at the ticker as it spews out quotes on a dull, red LCD screen. In the CSE board room, you will no longer find committee members celebrating results. All you will find are a few troubled men-figuring out how to avoid the next payment crisis.