Equity market headed for more competition

With new products such as special platform for SMEs and interest rate derivatives likely to be introduced in the equity market, there is increased activity among exchanges to seize the opportunity. It is not only the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) that are gearing up make the most of the new development, MCX’s stock exchange arm MCX-SX has also thrown its hat into the ring.

MCX-SX has already sought permission from the Securities and Exchange Board of India (Sebi) to enter the equity segment. The exchange is currently active in currency futures only.

The entry of a new player in the equity market, which is sure to increase competition, is expected to activate the now-dormant corporate bond market.

In fact, equity investment has remained confined mostly to big cities. Even trading activity is also confined to a limited number of companies. However, with MCX-SX planning to take the equity market to every nook and corner of the country, more households may start investing in equities, thereby contributing to the growth of the market. Currently, only 5 per cent of the total Indian households invest in equities. However, internationally the figure is 50 per cent.

The exchange is also planning to create regional hubs for luring small firms to raise their equity capital on its SME platform.

According to Sebi data, more than 60 per cent of NSE volumes come from the top-10 cities of the country. In the derivative segment, around 60 per cent volumes come only from index-based derivatives, mostly from the Nifty.

With the MCX-SX’s entry, the derivative segment may see many new products as competition in the segment will rise.

When contacted, the MCX stock exchange spokesperson said, “We will bring in our global experience of dealing with five international regulators and maintaining 10 global alliances in the multi-assets segment, from which the domestic equity market will benefit. The Indian market needs product innovations, more breadth and depth in liquidity. We have an India model to channelise savings into equity for industrial growth without depending on FII flows alone. This will be subject to regulatory approvals.”

Explaining further, he said, “We have plans to activate the corporate bond market, start derivative trading in various indices, implement dedicated hub and spoke model for the SME segment, focusing on revitalising regional hubs. Our experience in running one of the largest networks of exchanges nationally as well as globally with the best of global experts on our boards will help us achieve our goal.”

BSE and NSE are already in the field with a total daily volume of Rs 12, 000 crore in the cash segment and Rs 40, 000 crore in the derivative segment.

Approached for his views, former BSE executive director M R Maiyya said, “It will be a welcome move if Sebi allows MCX-SX to enter the equity segment as NSE, despite being a private sector profit making company, is enjoying a near monopoly in the derivative segment that needs to be broken. BSE has not been able to do much in derivatives and MCX-SX can reasonably compete with NSE. Competition is also necessary in the larger interest of the country for developing an equity cult.”

The MCX group has floated exchanges in Dubai, Singapore, Botswana, Bahrain and Mauritius. It has its presence in multiple assets, including equity, commodities and currencies. In the currency segment, MCX-SX has written to Sebi to allow it to launch maxi-contracts as in case of gold. In the yellow metal, MCX has launched mini-gold for smaller players, while for industry players, it has maxi-gold contract of 30 kg.