Finance Minister P Chidambaram on Friday sounded alarm bells in the market when he said regional stock exchanges and sub-brokers were being "used and manipulated by unscrupulous elements".
"I have heard of a possible misuse of regional stock exchanges and sub-brokers. There are disturbing reports that even barred brokers are perhaps operating from behind the scene, using the platform provided by regional stock exchanges and sub-brokers," Chidambaram said.
The finance minister also said the broking community had acquired an unsavoury reputation because of a few people operating in the markets.
Chidambaram was speaking at a function organised by the Association of National Stock Exchange Members of India.
The finance minister said it was necessary for the Securities and Exchange Board of India to sit with the National Stock Exchange and Bombay Stock Exchange authorities and work out a plan for regional stock exchanges and the sub-broking community.
"If this plan means that some of the regional exchanges have to close, so be it," he said, adding: "Even if it means that some sub-brokers will be out of business, such harsh measures will have to be taken. Misplaced sympathy should not lead us on a treacherous path where the integrity of the marketplace is threatened."
"Bad brokers will drive out the good brokers," he said, adding that the regulators would do everything in their power to ensure that the capital markets were run in a fair and transparent manner.
He said usually he heard only good news from Mumbai "but this time the reports are not so good". Senior Sebi officials, present on the occasion, evaded questions on the finance minister's comments.
Chidambaram made a strong case for brokers to consolidate and corporatise the exchanges and adopt advanced technology. "Going forward, there should not be more than 100 broking houses," he said.
The broking industry has to prepare itself for the next generation of reforms. "All of you must corporatise yourself. There is no place for lone rangers. And much of the unsavoury reputation is because of these Supermen and Spidermen operating on their own," he said.
The finance minister also assured that stamp duty anomalies would be removed so that corporatisation could be facilitated. He exhorted the members to ensure that the time-table for corporatisation (of the exchanges) was adhered to.
"We are determined that every stock exchange is demutualised and corporatised," he said.
