The regulated stock exchange business in the country is set for another round of intense competition. The Multi Commodity Stock Exchange (MCX-SX), which got a go ahead from the regulator yesterdayto start full-scale operations, is to launch equity trading on its platform from October. It would be the third national exchange after the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to host equity trading.
However, prior to equity, MCX-SX plans to launch currency options and it is likely this might be done this month itself, said an official.
Currently, only BSE and NSE offer equity derivative trading, in which the latter has the lion’s share. Equity is the most popular asset class in India. However, financial inclusion in the country is extremely poor, with less than two per cent of retail participation. But profit margins in the exchange industry are attractive. Last year, NSE reported a net profit margin of nearly 50 per cent and BSE 35 per cent. However, growth is sluggish due to falling trading volumes.
Addressing a press conference on Wednesday, Joseph Massey, managing director and chief executive officer of MCX-SX, said, “We would go live with equity trading in a couple of months before Diwali. But the decision will be taken in the soon-to-be-held board meeting. We have the technology and infrastructure in place but have to enroll members.”
Massey feels the cannibalisation of business is unliekly due to his entry and that the market would expand. “The focus will be more on how to broadbase markets than just cutting into other’s pie. Retail participation is quite low in the country,” he said.
NSE claims 1,405 members and the BSE, 1,383. Both together trade around Rs 1.5 lakh crore worth of equity cash and derivatives on a daily basis. Both exchanges have also set up platforms to attract high frequency trading systems, in vogue among institutions and brokers.
MCX-SX currently operates in the currency futures segment. It was hitherto not allowed to launch options contracts in this segment, being locked in a legal battle with the regulator.
When asked how MCX-SX planned to position itself to take on competition from NSE and BSE, vice-chairman Jignesh Shah said, “Like in Bollywood, there are many Khans and all are thriving, our exchanges, too, will outshine.”
Both Massey and Shah stressed that apart from equity trading, their thrust would also be on the underdeveloped bond trading market. “Globally, other asset classes like bonds, interest-rate futures and the currency segment, among others, have an 85 per cent market share in the financial trading space. Our effort would be to provide a robust bond market to India, while not losing the focus on ‘glamorous’ equities,” said Shah.
Adding: “Exchanges in China have ensured the highest retail participation. Our effort will be to build an India model and widen retail participation for investment in the market.”
Financial Technologies (FT) and MCX own five per cent stake each in MCX-SX. Another 60 per cent held by these promoters was converted into warrants. While FT and MCX will have to bring down their combined stake to five per cent in 18 months, a window of three-years was provided by the regulator to sell the warrants, which can be converted into equity by those who purchase these.
MCX-SX has a net worth of Rs 250 crore at present, expected to go up to Rs 300 crore over the three years after it launches operations. The bourse had suffered a loss of Rs 30 crore in financial year 2010, Rs 56 crore in 2011 and Rs 58 crore during the last financial year. Its rival, NSE, for the half-year ended September 2011, collected Rs 365 crore as transaction fees from brokers, nearly unchanged on a year-on-year basis. The total half-yearly revenue of NSE grew 21 per cent to Rs 778 crore. This was driven by a more than five-fold jump in interest income to Rs 161 crore.