While the Multi Commodity Stock Exchange (MCX-SX) is set to launch full-scale operations from October, international exchanges, too, are making a bid to gain a pie of business in this segment. The London Stock Exchange (LSE) recently picked up a five per cent stake in the currently defunct Delhi Stock Exchange (DSE), with plans to revive the bourse. LSE had signed a technology deal with DSE to provide trading platform and other software solutions, with the latter planning to launch operations this year, said a person with direct knowledge of the developments.
This apart, NYSE Euronext chief operating officer Lawrance Leibowitz would be in India during next week, to explore business opportunities in the exchange space, said a Mumbai-based exchange official.
NYSE has been keen for a partner in India after selling its five per cent holding in the National Stock Exchange (NSE). NYSE Euronext is believed to have sold its stake in NSE after the latter tied up with its rival the Chicago Mercantile Group (CME) in the US. It remains to be seen if NYSE Euronext partners the MCX- SX, as the former’s global partner Deutsche Borse has a five per cent stake in the Bombay Stock Exchange (BSE), said an analyst. The NYSE Euronext already holds a five per cent stake in Multi Commodity Exchange, a promoter of MCX-SX.
But action in the coming days will not be limited to MCX-SX. BSE is preparing to launch its initial public offering (IPO). Listing the exchange would be first on the agenda of the new chief executive officer (CEO) and managing director (MD) of the bourse, likely to be named by October, said one the members of the selection committee. Currently, Ashish Chauhan, the interim CEO and MD, who played a key role in re-structuring BSE along with former chief Madhu Kannan, is the top contender for the post. Regional SEs like Ahmedabad Stock Exchange and Baroda Stock Exchange are awaiting regulatory nod to tie up with the NSE. According to the Securities and Exchange Board of India (Sebi) RSEs will have to wind up their operations if they fail to revive it in two years. There are more than 20 RSEs, which are defunct, but are sitting on a huge chunk of real estate.
However, experts believe the stringent norms governing SEs and a five per cent cap on shareholding will not be sufficient motivation for promoters and investors to build a long-term business. For instance, support for BSE could have come from the Deutsche Borse group, a leader in the derivatives market place globally, but new regulations do not make it interesting enough and are pro-monopoly, believes Thomas Caldwell, who owns five per cent stake in BSE. Caldwell owns stake in several global exhanges, including Canada’s largest exchange group, the TMX. Even the promoters of MCX-SX, Financial Technologies and MCX, will have to bring down their stake to five per cent in 18 months. However, they have been allowed a three-year window to sell the warrants they hold, which will constitute nearly 60 per cent stake in the hands of the buyers. “The five per cent cap on shareholding is unprecedented,” says Mumbai-based Sandeep Parekh, of FinSec Law Advisors. Parekh is of the view that the activity could be short lived as there appears to be ambiguity in Sebi’s recent norms that override the previous Manner of Increasing and Maintaining Public Shareholding regulations and the five per cent cap would act as a major deterrent for other new exchanges.
Sebi says, select institutions like domestic SEs, banks and insurance companies can take up to 15 per cent stake in an SE. However, it has capped the ownership of foreign players, other promoters and individuals at five per cent. Yet, LSE chief Xavier Rolet expects these stringent holding limits to be relaxed over the time. Among other strictures, Sebi has said SEs cannot hold more than 51 per cent stake in their clearing corporations (CCs) and 26 per cent stake in their depository business. But they will have to infuse more capital in CCs and also transfer 25 per cent of their profit to the settlement guarantee fund of CCs.
