NSE working to cut 4-5 month lag in share transfer; open to considering bonus issue: MD

Last week, NSE reported an 8% rise in consolidated net profit at Rs 1,975 crore for the quarter ended December 31, 2023

The National Stock Exchange is working on reducing the time taken to transfer shares in the name of the buyer, the exchange's Managing Director Ashish Kumar Chauhan said during a conference call with analysts and investors to discuss the bourse’s third quarter earnings.

To persistent questions about the bourse’s proposed initial public offering (IPO), Chauhan said they had not heard from SEBI.

“We do not know when SEBI will be giving us a signal to go for IPO. So, currently, we have no update to give you on that,” said Chauhan.

At present, the share transfer process sometimes takes as long as 4-5 months, some of the participants on the call said.

While NSE shares are unlisted, they have been seeing a lot of interest from wealth management firms and high net worth individuals over the last 2-3 years.

As of December 31, 2023, around 8,700 individual investors collectively own a little over 12 percent stake in the bourse, amounting roughly 65 million shares. The shares changed hands for prices varying between Rs 2,850-Rs 3,600 in January, according to the NSE website.

Chauhan said while NSE had already reduced the transfer time considerably, there were technical factors as well. Also, it was not always the exchange which was responsible for the delay.

“Because we are not listed, our process of transferring shares is very different from other listed exchanges,” Chauhan said in response to a question.

“We have to give literally do a search about the fit and properness of every potential shareholder who sends us this certificate for transfer and that takes time,” he said.

Under SEBI regulations, market infrastructure institutions like stock exchanges must ensure that their shareholders, directors and key management personnel are ‘fit and proper’ persons at all times.

The fit and proper criteria include financial integrity, good reputation, honesty; no conviction in any court for any offence, or any order like a restraining order by Sebi.

“Broadly speaking, there are some cases which have lasted for a longer time, but broadly more than 80-85 per cent of all cases get completed within 10 days,” Chauhan said, adding they were trying to automate the process to the extent possible.

But there were also instances, he said, where the intermediaries may have told the buying shareholders that the shares have been sent for transfer when they may not have been.

“… sometimes they will not (send for transfer) and you keep on getting that feedback that it has been sent. And so, the ball is passed on to the exchange for whatever are the dealings on the other side. You might like to check with your sort of intermediaries also about exact details,” Chauhan said, adding that investors could reach out to the bourse directly to check the status of the transfer.

“You might like to control the process yourself and if you have any issue, so once you have passed on the certificates to NSE, if you want to ask any questions, you can ask to r.gupte@nse.co.in. He is the company secretary. He will ensure that all your queries are resolved and your transfer is expedited,” Chauhan said.

One reason for the heavy demand for NSE shares is that the stock is cheap compared to rival BSE with a much lower market share. Even considering Rs 3,600 per share, the stock is available at 30 times trailing 12-month earnings, compared to over 75 times for the BSE. This gap is expected to narrow once NSE shares get listed, though there is no clarity on when that will happen.

One investor said on the call that small investors were not able to buy NSE shares because the price had gone up, and so the exchange should consider a bonus issue.

“It is a good solution. We will take it up to the board,” Chauhan said in response.

On a question about BSE gaining market share in the derivatives segment, Chauhan sounded unperturbed.

“Market share of a company, which is like 100%, any new corporation will have that dent on that and that will continue. It's a normal market process,” he said, while pointing out that NSE’s volumes in both derivatives and the cash market have been rising.

Last week, NSE reported an 8 per cent rise in consolidated net profit at Rs 1,975 crore for the quarter ended December 31, 2023.

The consolidated income from operations stood at Rs 3,517 crore for the October-December quarter of the current financial year (2023-24), a surge of 25 per cent year-on-year, NSE said in a statement.

Apart from trading, the total revenue was also supported by other revenue lines, including listing, index services, data services and co-location facility, the exchange added.

On a standalone basis, NSE posted a net profit of Rs 1,377 crore for the third quarter under review compared to Rs 1,568 crore in the corresponding quarter of the preceding year.