Business Standard

MCX-SX starts trading, setting up battle with NSE

The third major stock exchange of the country opens for business

Related News

The new stock exchange, attracted thin volumes as it started shares on Monday, taking up the challenge of winning market share from dominant players National Stock Exchange (NSE) and BSE Ltd.

The value of shares traded on the MCX-SX in its first day was just Rs 6.9 million, its web site showed, compared with 94.57 billion on the NSE, the larger of the two established bourses.

"(The) earliest we can know whether MCX has made a mark in equities is five years from now," said Phani Sekhar, a fund manager at Angel Broking.

Some brokers are cheering on MCX-SX, which quickly built one of the country's top commodity bourses, in the hope it will push down trading costs and drive development of trading products.

Although trading volumes are expected to rise in line with the government's goal of bringing more retail investors into stocks, exchanges face a gruelling battle for market share.

"It's not surprising that initial volumes (on MCX-SX) are very low. It may remain in low range for next few months," said Abhay Jain, senior advisor at SSJ Financial Securities.

Policymakers have long sought to bring more retail investors into stocks via mutual funds, which owned only 3.6% of the broad BSE index last year, according to Citigroup data.

Gold and property are preferred by many investors in India, where fewer than five in every 100 people buy equities, either directly or through mutual funds, regulatory data show.

By comparison, more than half of Americans own stocks, many through 401k pension plans, according to a Gallup estimate. In China, 86 percent of trading on domestic markets is carried out by retail investors.

The total value of share trading on the NSE was $526.1 billion last year, compared with $110.3 billion on the BSE, according to World Federation of Exchanges data. Combined, that amounts to a quarter of the $2.6 trillion traded in the Shanghai Stock Exchange.

Battle with NSE

The entry of MCX-SX sets up a battle with NSE, once an upstart itself. After starting stock trading in 1994, NSE overtook BSE several years later, in large part by introducing new derivative products.

The competition is also coloured by the acrimonious relationship between MCX-SX and NSE, which have frequently sparred publicly, especially over fees. Both already compete aggressively in currency futures.

Costs could be the first battle. Traders say MCX-SX's structure lowers trading costs. NSE has countered by lowering membership fees for brokers under certain incentives.

The bigger battle could be waged in derivatives. The NSE has posted average daily turnover in this segment of Rs 1.22 trillion so far in the fiscal year through March, accounting for the bulk of its overall equities trading.

MCX-SX is already focusing on this by offering to reduce settlement times in futures and options.

MCX-SX has experience to fall back on. One of its two controlling shareholders is Multi-Commodity Exchange of India Ltd, which operates commodity exchange MCX. The other major shareholder is Financial Technologies (India) Ltd, which provides trading software for brokers.

Both the NSE and BSE are owned by domestic and financial institutions, with Deutsche Boerse AG and Singapore Exchange Ltd owning stakes in BSE and Goldman Sachs Group Inc, Citigroup Inc, and Morgan Stanley owning stakes in the NSE.

After starting trading in 2003, MCX quickly overtook India's National Commodity & Derivatives Exchange Ltd (NCDEX) in trading of gold and metals, in large part by focusing on developing derivatives contracts.

"MCX's strength has been business development and they know how to create liquidity for new contracts," said Gnanasekar Thiagarajan, a director at Commtrendz Research.

Read more on:   

Read More

Markets extend losing streak led by financials

Markets extend losing streak led by financials

Recommended for you


Quick Links

Market News

Weekly: Markets end lower on CIL sale, NPA woes

The 30-share Sensex ended down 96 points at 29,183 and the 50-share Nifty closed 27 points lower at 8,809

Gold enters bullish territory

FOMC minutes reiterates "patience" on interest rates hike, to support gold to $1,325 and beyond in near future

Quality concerns bug groundnut export

Groundnut export hit a record of 832,617 tonnes worth $1,094 mn in 2011-12, described as an exceptional year. It was 509,665 tonnes worth $526 ...

LIC: The quintessential white knight

State-owned Life Insurance Corporation of India (LIC) has always been the government's go-to investor when it comes to divesting its holdings in ...

CIL sale raises Rs 22.4k cr, drags markets

OFS becomes biggest equity offering ever


Back to Top