Tough regulations governing stock exchanges (SEs) in India are no deterrent for the London Stock Exchange (LSE). The 200-year old British bourse has picked up a five per cent stake in Delhi Stock Exchange (DSE) and aims to change the trading model by providing the fastest trading technology to the latter to take on the Indian market. The DSE, which has been dormant for a decade now, was launched in 1947 shortly after India got independence from British rule.
LSE’s interest in DSE emerges from the fact that volumes of exchanges in Bric(Brazil, India, Russia, China) nations are growing faster than their counterparts in developed countries and it had missed an opportunity to buy a stake in Indian exchanges earlier. Top global exchanges, including Deutsche Boerse AG, Singapore Stock Exchange and New York Stock Exchange had picked up stake in National Stock Exchange or Bombay Stock Exchange when these were de-mutualised in 2007. The LSE is facing tremendous competition in Europe and has been under huge pressure to widen its reach beyond the region.
LSE declined comment on the deal. But the bourse said it had signed a deal to sell its trading and risk management technology to DSE in March. Millennium IT, a wholly owned subsidiary of LSE that it had acquired in 2009, is one of the fastest trading systems in the world. It allows a trade to be done in less than 100 microseconds, which the exchange says is faster than NSE and BSE. Use of automated trading is swiftly growing in India with a majority of brokers offering high-frequency trading, as both NSE and BSE have launched services to attract them.
While LSE or DSE are yet to make the stake deal public, sources familiar with the developments say, the latter has got a valuation of more than Rs 100 crore. This, since the DSE owns the entire building where it is housed at Asaf Ali Road in New Delhi and it has also got a go-ahead from the regulator to launch its operations, unlike other regional bourses.
The LSE aspires to scale up its stake in DSE to 15 per cent as rules permit SEs to hold that much in other exchanges in India. However, DSE is 21 per cent owned by foreign investors, including Delaware Street Capital, a Chicago-based hedge fund that also makes private equity investments. There is a 26 per cent cap for foreign investment in SEs. The rest of the stake in DSE is held by domestic brokers and media companies including Bennett, Coleman and Co, Television18, New Delhi Television and realty firms such as Parsvnath Developers and Omaxe Ltd.
Harinder Mishra, a British-born expert in trading technology, will head DSE after its executive director and chief executive officer H S Sidhu resigned.
He is likely to resume by July 15 and will be joined by another top executive from Bangalore SE, said a source in Delhi.
Mishra has played key roles in making big the electronic trading business in Europe. He was the chief operating officer and co-founder of Chi-X Europe, a small, nimble trading platform that emerged to challenge LSE in London about five years ago. When Mishra left Chi-X in 2010, it was the second largest equities trading venue in Europe, just behind the LSE Group. This apart, Mishra has earlier worked with Instinet and in his role as SVP head of product development and head of the European exchange linkages group, was instrumental in delivering Europe's direct exchange connectivity product suite, and launching the first European smart order routing system.
However, analysts say Europe is more liberal towards competition and working in India may prove a challenge for Mishra as the market has undergone tremendous change since demutualisation of SEs. Any reform or changes introduced by exchanges have to undergo strict regulatory scrutiny. This said, Sebi has paved the way for new SEs to come up by allowing a three-year window for de-mutualisation.