The report, prepared by C C Chokshi and Company, said ISE should be willing to welcome BSE and NSE whenever they show willingness because of the natural advantages to all the exchanges. ``Since there is a large market for inter-exchange trading due to arbitrage opportunity, in either squaring-up business or delivery base business, it is expected that the members of other exchanges would find it beneficial to trade with a member of another exchange through the ISE route due to the safety it provides as against the present system of member to member trading in the inter-market segment,'' it said. ISE is expected to start operations in June1998.

``The NSE and BSE members are used to trading in large volumes for institutional investors and the high networth investors, and therefore their cost structures and administrative back office procedures may not be suitable for a small investor,'' the ISE study said.

NSE and BSE members do not have a low cost distribution channel or network that has been developed by the regional brokers over the years by providing personalized services to such small investors. Therefore even if the BSE and NSE members expand to the smaller cities, they would tend to focus on catering to the needs of a select few large clients in these cities rather than low volume retail clients.

``NSE and BSE members will find it difficult to take care of servicing the needs of small investor as their exchanges are far off. The investors will prefer to trade with a member whose operations are being regulated by an exchange locally,'' it said.

With the proposed setting up of a trade guarantee system and participation in adepository, the safety of all markets will be equally good and therefore there may not be much advantage to trade on NSE or the BOLT. Thus, with the creation of ISE with simillar safety will bring back business from NSE and BSE to the smaller exchanges. Besides the direct and indirect cost of operating on NSE and BSE are quite large in comparison to ISE which would also encourage members to trade on the ISE.

As of now there are 22 stock exchanges in the country, out of which three exchanges account for almost 79 per cent of the total secondary market turnover. During 1996-97, out of the total turnover of Rs 6,46,116 crore, the NSE, BSE and Calcutta Stock Exchange accounted for a share of 46 per cent, 19 per cent and 16 per cent respectively. The other 19 exchanges accounted for 19 per cent of which Delhi and Ahmedabad accounted for another 11 per cent leaving the regional exchanges share at 8 per cent.