With a third of daily trading in the cash section and none in derivatives (which comprise two-thirds of daily trades), it's easy to write off the 128-year-old Bombay Stock Exchange as a behemoth that died because of its refusal to change with the times, like the other 22 exchanges in the country that have perished under the onslaught of the National Stock Exchange.

Apart from being seen as a broker-driven exchange, when the popular sentiment remains critical of brokers, BSE is perceived as not being as tech savvy as rival NSE, and not as ready to embrace new methods -- while the NSE readily began trading in derivatives, BSE's members opposed this for a long time, to cite just one example.

Yet, unnoticed by most, there's a quite makeover happening at the BSE. The results, though far from dramatic, are slowly becoming evident as well -- while BSE's share of the cash segment fell from around 50 per cent in 2001 to 27 per cent by 2002, it is now inching up to around 33 per cent.

And though it is not BSE's core business, the exchange's training programmes on financial markets are already its fourth largest earner and, at the current pace, could well make BSE the largest training centre in all emerging markets.

Given that there are a lakh market participants and, slowly but surely, Sebi is making it mandatory for them to complete certain minimum training modules, this could even become the BSE's largest revenue generator in the next five to six years. That's also why, from less than half a floor in the imposing BSE building, the training programmes are now getting a full two floors.

There are major changes taking place in BSE's core business as well. For years, while the NSE was willing to open its membership to as many brokers as possible, subject to them depositing over a crore rupees with it, the BSE's broker-promoters refused to expand the club. And when they did, in dribs and drabs, it was under pressure from the government.

Now, after years of seeing the exchange decline, BSE has not only opened fresh card-based membership on tap, it has also approved an NSE-style deposit-based membership that has got Sebi's in-principle approval. This, the BSE hopes will help boost its membership, currently around half of NSE's thousand or so.

After this was allowed in 2000 for the first time to non-NSE exchanges, the BSE is finally venturing out of Mumbai -- a wise move considering half the daily turnover on the country's exchanges takes place outside of Mumbai.

Last year, three hubs were created, and another 11 will be completed this year, to connect brokers on a managed leased line network. And, in a bid to garner business immediately, trading of shares listed on the mostly-dormant small exchanges will be permitted on the BSE under its proposed "BSE-Indonext" platform -- all listing requirements, however, will continue to remain the parent exchange's responsibility. Fourteen exchanges have already agreed to be part of Indonext, and a joint proposal has been submitted to Sebi for approval.

All this, however, is meant to increase BSE's volumes, but what of the investor? How's he or she to feel safer on BSE, given that the BSE has been going through one crisis or the other?

One thing that the BSE's done, to improve its image apart from genuinely cleaning up operations, is to have an external audit of its compliance record with all regulations, of Sebi as well as of other regulators. An effort has also been made to reduce control of brokers in day-to-day operations of the exchange by a drastic reduction in the number of board meetings and board-committees, and a greater infusion of professionals.

Besides giving its departments a greater client-focus, BSE is also focusing on retraining employees, and has also got a Certificate Course on Financial Management specially designed for it.

Determined to show its resolve to deal with errant brokers, employees and companies, the BSE's professional management has already delisted a total of 333 companies in just the last three months for not filing information or violating other listing requirements, and a whole lot more delistings are on the cards -- some say that by the end of the year, a fourth of the companies listed on the BSE could get axed.

For the first time in decades, a member of the BSE was expelled, and another's terminal was deactivated for manipulating the market even before Sebi passed any order.

Indeed, the BSE is being proactive, and going beyond even what the law requires. Some months ago this column wrote about how the BSE called in the managements of some firms who had advertised their latest unaudited results, and asked them to explain the huge jumps in net profit.

While this is not the BSE's job (it is the job of the Department of Company Affairs), the exchange decided to place these companies' scrips in the Z category once the promoters could not satisfactorily explain the results.

And, while Sebi was still deciding about whether or not to introduce a new form of reporting promoters holdings (held in companies in which the promoter was able to influence), BSE decided to introduce the new system.

BSE, in fact, is even working with the NSE to take joint action across their exchanges on circuit filters and extra margins, a level of cooperation unimaginable a few years ago.

While cleaning up the exchange's operations is a major effort, whether this will help it grab back its leadership role is a million dollar question.

The derivatives market, for instance, is largely seen, as the NSE's preserve, and BSE will have to come up with major innovations or slash costs to attract investors. In the last year though, BSE has shown extraordinary agility as well as the ability to adapt to new situations.

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