NSE, MCX-SX out to strike deal with BSE

The 132-year-old Bombay Stock Exchange (BSE) is suddenly finding itself in the limelight. Its competitor National Stock Exchange (NSE) and new entrant MCX-SX are vying with each other to cement a tie-up with it. The reason: The BSE Sensex is perceived to be a strong brand. Also, there are over 7,000 securities listed on BSE unlike NSE, which has only 1,589 stocks.

NSE is the market leader, both in terms of cash and derivative volumes. However, with the entry of MCX-SX, which has sought permission from the Securities and Exchange Board of India (Sebi) to start equities trading, the market leader wants to ramp up its operations.

NSE, which started operations 15 years ago, is understood to have offered to create a front-end software called NOW on BSE’s BOLT terminals. This means that trading on NSE- and BSE-listed companies can be done simultaneously. These would include cash, futures and options (F&O) and currency derivatives.

While BSE gets the larger network of NSE members, the latter will have the opportunity to trade in thousands of companies listed on BSE only.

MCX-SX, the stock exchange arm of the Financial Technologies group, is also understood to be in talks with BSE. It is reliably learnt that chiefs of both the exchanges met last week to discuss a possible tie-up. The outcome of this meeting would be placed before the BSE board that is going to meet on May 9. The board has authorised chairman Jagdish Capoor to negotiate the deal, according to sources.

Both BSE and MCX-SX’s spokespersons declined to comment on the subject. However, sources said that in recent weeks, top officials of BSE have met both NSE and MCX leaderships.

One of the possibilities in the MCX-SX’s offer to BSE is that both the exchanges can have equity holdings in each other. This can be as high as 15 per cent, in accordance with Sebi’s norms. The proposed deal, according to sources, could be allowing trading in cash to continue with the BSE, while F&O trading could be shifted to MCX-SX.

If this were to happen, even Sensex futures may be traded on MCX-SX, which may share the fees/transaction charges with BSE for such arrangement.

A Sebi source said that since the demutualisation of BSE, the ownership spirit has been lost. This has served as an impediment to BSE’s growth.

After the demutualisation in May 2007, brokers together hold less than 50 per cent and other institutional players have not been able to give the push because they do not have holdings of more than 5 per cent.