I would not doubt the president's integrity, but I don't see why the board will not accept his resignation

Bimal Parekh Sunidhi Consultancy

The decision follows a board meeting at the exchange on Thursday morning, which was called to consider Mr Rathi's offer to resign.

Mr Rathi tendered his resignation after he was allegedly found to have leaked privileged information to some brokers.

The BSE Vice-President, Dina Mehta, has now been appointed acting president until next month when elections for the post will be held.

Prior to the board meeting, Bimal Parekh, a director at the local brokerage Sunidhi Consultancy, said: "I would not doubt the president's integrity, but I don't see why the board will not accept his resignation."

The alleged insider trading prompted a severe stock slump on the exchange.

Over three trading sessions at the end of last week, the market lost nearly 9%.

Denies accusations

The plunge contrasted with a trading peak last Wednesday following the release of what was seen as a market-friendly budget.

India's regulator - the Securities and Exchange Board of India (SEBI) - subsequently began an investigation into the share deals.

No benefit has even been availed by me, nor I have obtained any privileged information for my own benefit

Anand Rathi president of the BSE

"We are investigating eight brokerage firms in Bombay to check whether there was any excessive speculation or manipulation of stock prices," said Dr Mehta, chairman of SEBI, on Monday.

The local Asian Age newspaper claimed on Wednesday that SEBI had seized recordings of telephone calls showing that Mr Rathi was given market-sensitive information, which was later leaked.

Mr Rathi has denied the accusations, but said he would resign to "maintain the dignity and credibility of the president's office".

He added: "No benefit has even been availed by me, nor I have obtained any privileged information for my own benefit or any other party's benefit."

Foreign firms

Amongst those being investigated are foreign institutional brokerage firms such as Morgan Stanley and Credit Suisse First Boston, and some big Indian brokers like Radhakishan Damani and Nirmal Bang.

Nearly all these firms have denied any involvement, insisting that they were only executing regular business as per the "requirements of their clients".

The BBC's Sanjeev Srivastava in Bombay says it is the second time in two years that the head of the stock exchange has been forced to resign amid allegations of abusing their position.