Ending licences anti-competitive: Index provider MSCI slams Indian bourses

Says Indian exchanges' move to terminate licensing and data-feed pacts with global counterparts is anti-completive, could cause disruption and lead to a cut in India's weight on its global indices

Global index provider MSCI has slammed Indian exchanges’ decision to terminate licensing and data-feed agreements with their global counterparts.

MSCI, whose indices, widely used by passive investors, help channel billions of dollars into Indian markets, said the concerted announcement by three domestic exchanges was “anti-completive” and would restrict access to the Indian market.

“MSCI is evaluating the measures’ potential impact on existing financial products and the future accessibility of the Indian equity market for international institutional investors more generally. It is a clearly negative development for the accessibility of the Indian equity market for international institutional investors,” said the index provider in a release, hinting that it might have to cut India’s weight in its global indices.

Currently, India’s weight on the MSCI Emerging Market (EM) index is about eight per cent, and on MSCI Asia Pacific (ex-Japan) index it is 12 per cent. These help India attract nearly a tenth of the foreign flows going into emerging markets (EMs) through exchange-traded funds (ETFs).

Industry sources say the assets under management of ETFs with MSCI EM and MSCI Asia Pacific indices as underlying is over $50 billion.

On February 9, the National Stock Exchange (NSE) and BSE — India’s two main exchanges — and MSE had said in a joint release that they were discontinuing their data-feed tie-ups with foreign exchanges to prevent offshore trading in domestic securities. The move would come into effect after the contractual notice periods expire — in August 2018.

“A set of restrictions on the use of traded price data is inconsistent with the practices of any other market in MSCI’s Emerging Markets Index series and could result in an unprecedented disruption of trading in financial products in markets around the world,” MSCI said.

“Based on the exchanges’ press release, we understand that they do not seek to impose a precipitous or disorderly wind down of the various products that would be affected in many markets around the world. Nonetheless, given the breadth of the application of the changes referred to in the announcement, we believe that if the changes are put into effect, the result will be disruptive and harmful to international institutional investors in Indian equities whether accessing the market onshore or offshore,” it said.

“Under MSCI’s Market Classification Framework, anti-competitive measures restricting investors' access to derived stock exchange information receive a negative score in the Competitive Landscape category,” it further said.

MSCI has issued curbs on the China market due to restrictions on overseas investors in accessing stocks traded on the Mainland. The index provider has threatened a similar action against India.

“The introduction of restrictive measures that might result in a material deterioration of the accessibility of an equity market is reviewed carefully by MSCI in consultation with international institutional investors and other market participants and could lead to a change in market classification,” it warned.

“MSCI strongly suggests the Indian exchanges and their regulator, the Securities and Exchange Board of India (Sebi), reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI Indexes,” the global exchange provider warned.

Vikram Limaye, MD & CEO of NSE had told Business Standard last Friday that exchanges would continue to provide data to ETF providers.