Under-pressure United Stock Exchange in talks to be acquired by BSE

MUMBAI: The United Stock Exchange (USE), under pressure over dwindling net worth and operating only in the currency futures segment, is in talks to be acquired by BSE Ltd, which runs Asia’s oldest exchange, two people close to the development told ET.

If the deal goes through, it will be the first such transaction in the domestic exchange industry. USE’s business is under pressure due to its inability to build steady volumes and arrest the decline in net worth.

Securities and Exchange Board of India (Sebi) rules dictate that an exchange should have a net worth of Rs 100 crore at all times. USE’s net worth is down to Rs 115 crore and it may not be able to sustain this above the threshold limit beyond a few quarters.

A share swap deal is one of the options being discussed by the two exchanges, according to the people cited above. The BSE already holds a 15% stake in USE that it purchased in 2009.

Both BSE and USE did not reply to an email seeking their response to queries. Market experts said merger deals will pick up in the domestic exchange industry as entities such as MCX-SX and other regional bourses are struggling to maintain their net worth at the required level. MCX-SX has a net worth of Rs 121 crore and is banking on a rights offer for more money.

The Delhi Stock Exchange is also a takeover candidate, said people with knowledge of the situation. USE has an average daily turnover of about Rs 1,500 crore in the currency futures segment. That turnover compares with Rs 4,000 crore for the BSE and more than . 8,500 crore for the National Stock Exchange.

Banks hold around 49% of USE’s equity and private companies account for the remaining 51%. Its promoters include Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Federal Bank and HDFC Bank. Corporate promoters include MMTC, Indian Potash, Jaypee Capital and TCS.

The brainchild of Jaypee Capital’s Gaurav Arora, USE was launched in 2010 and created a record of sorts with its first-day trading turnover of Rs 45,000 crore. The Jaypee group now owns a 2.91% stake in USE as it had to bring down its holding to comply with Sebi regulations.