Sebi not in favour of NSE-MCX merger due to co-location controversy

The proposed merger between the National Stock Exchange (NSE) and the Multi Commodity Exchange (MCX) is unlikely to see the light of day in the near future. 

According to sources in the Securities and Exchange Board of India (Sebi), it is not in favour of a merger at this point in time because of pending investigation in the co-location matter involving the NSE.

Both the exchanges had prepared an initial merger proposal and had even appointed the investment bankers for the transaction.

Earlier this month, the NSE and the MCX had an initial round of discussion with Sebi over the merger proposal, and did not get a favourable response from the regulator, said sources.

"Sebi is of the view that the merger could lead to indirect listing of the NSE. This could create complications as the co-location controversy is yet to be settled," said a source. 

The NSE and the MCX entered merger talks earlier this year after Sebi's board accepted the universal exchange framework last December. From October 1, equity exchanges were allowed to deal in commodities, while commodity bourses were allowed to start equity trading.

What's the hurdle?

• Pending probe in the NSE co-location controversy a key  issue
   
• Sebi is of view that the merger could lead to the back-door listing of NSE
   
• The listing of NSE would complicate the investigation
   
• Regulator may pass order in the colo matter by November-end

A possible merger would have helped the NSE and the MCX cement their domination in the trading space. The NSE is a market leader in the equities trading space, while the MCX has an over 80 per cent market share in commodities.

The MCX declined to comment on the matter. A query sent to Sebi and the NSE remained unanswered. 

As the merger plan is expected to fall through, the NSE might become aggressive with its commodity foray, said industry players.

The NSE recently started trading in select commodities such as gold, silver, and copper. The MCX has maintained that it doesn't plan to enter the equity trading space.

The source cited above said Sebi was currently examining the findings submitted by the auditors and internal investigation teams in the co-location case. 

“Sebi is in the final stage of finalising the investigation. The regulator is expected to pass order in the matter by the end of the next month. The order would be against the former top executives of the NSE who allegedly facilitated fraud by manipulating the bourse's server,” the person said. 

At present, the MCX has a market capitalisation of Rs 37 billion. In comparison, the unlisted NSE is valued nearly 10 times more at about Rs 400 billion, going by some of the recent off-market transactions.