Why reviving the stock exchange on Lyons Range is a tall ask

The defunct Calcutta Stock Exchange (CSE) on Lyons Range hogged the limelight last month, thanks to the Bharatiya Janata Party-led new government proposed reviving the 118-year-old bourse.

Recently in his Budget speech, the West Bengal Finance Minister, Swapan Dasgupta, said CSE is on the verge of closure due to several hurdles, and the State government would support its revival to reclaim Kolkata’s place as a financial hub.

The revival of the CSE would have multifarious advantages, including easier access to capital for Eastern India, lower costs of listing and trading and creating new jobs, said the Minister on the floor of the Assembly while presenting his Maiden Budget. The proposal also envisages the listing of profitable State-owned enterprises (PSUs) on the CSE to unlock corporate value and boost State revenues.

Trading on the CSE was suspended in April 2013, following regulatory non-compliance with the exchange failing to set up or tie up with a clearing corporation. CSE members continued to trade directly on the National Stock Exchange (NSE) platform. However, this service stopped in 2024.

While CSE members remain enthusiastic about reviving the exchange, bringing the bourse back to life will be an uphill battle. An exchange cannot survive without broad stakeholder support. While the government may extend assistance, the real test lies in attracting market participants.

Winning over traders will be particularly difficult, as the NSE and BSE already offer superior infrastructure — from trading platforms and clearing corporations to depository services and market surveillance.

Even if the CSE upgrades its infrastructure, its relatively lower liquidity would translate into higher impact costs, reducing trading efficiency and investor returns. Companies seeking to raise capital are also likely to favour the larger exchanges because of their wider investor base, deeper liquidity and more advanced market ecosystem.

The challenges are evident from the experience of Metropolitan Stock Exchange of India Ltd (MSEI), which, despite backing from banks and marquee investors such as Groww and Zerodha’s Rainmatter Investments, continues to struggle for market share. More recently, NCDEX received regulatory approval to launch equity and derivatives products and plans to begin with mutual fund offerings before expanding further.

There have also been suggestions that the CSE should focus on attracting small and medium enterprises (SMEs) from East India. However, following a series of scams on the NSE SME and BSE SME platforms — particularly those involving the siphoning of funds by promoters — this can prove quite risky.

The exchange also faces a credibility deficit. It needs a significant image makeover to restore investor confidence and market relevance. In 2017, SEBI identified 145 of the CSE’s 331 listed companies — nearly 45 per cent — as shell companies. Such entities typically have little or no genuine business activity and are often used for money laundering, tax evasion and concealing beneficial ownership.

Government backing alone will not be enough to revive the CSE. The road ahead remains challenging, and a successful turnaround will require sustained regulatory reforms, strategic direction, and broad-based market participation.

It is widely accepted that healthy and efficient markets require robust competition. However, given the current market dynamics, this exercise is likely to prove futile.