The National Stock Exchange (NSE) is working on a three-pronged strategy which would help maintain its position as the leading trading bourse in the country
The exchange, which has already spread across 170 cities while recording the highest traded turnovers, will now focus on new product innovations, cost-effectiveness and providing greater investor service.
The NSE top brass is of the view that with competition increasing amongst stock exchanges, and information flow critical to issuers and investors , these three factors would determine which exchange survives as the leader at the very top.
The capital markets are already witness to the winds of change with the Bombay Stock Exchanges BOLT expansion plan taking off. The market is readying itself for the commencement of derivatives trading and the modified carryforward trading system may also be introduced in the coming months.
NSEs strategy will be different from its arch rival, BSE which is positioning its ride on the BOLT expansion plan and then higher trading volumes.
In terms of financial costing plans, the NSE will place thrust in the area of sale of information earnings, through information feed to newspapers, periodicals, agencies and research outfits. For larger exchanges abroad, at least 10-20 per cent of the income is borne out of this segment. As the mutual funds industry expands and research needs grow, this will be a critical area of operation, said a NSE official.
The strategies in detail:
Innovations: This factor will be coupled with cost-effectiveness. With derivatives trading expected to come sooner than later, the variety of financial instruments to be traded at the markets will increase, with NSE to focus on specific instruments for a specific group of investors based on their risk-bearing capacity.
Cost-effectiveness: No more is cost-effectiveness merely judged by transaction costs (which at SEs abroad is the lowest factor). With the coming of the NSE, order executions have become more effective, moving from 30-40 per cent to nearly 100 per cent. Transaction costs are amongst the lowest at NSE, with higher market liquidity ensuring lower spreads and hence lower costs. The NSE would seek to reduce the brokers back-office costs and risk settlement costs.
The shift from the physical market to the dematerialised trading segment will help reduce back-office costs.
Investor services: Despite the strong speculative trading element at the exchange, the NSE holds its strength in terms of number of trades, totalling over 2 lakh trades per day. The pre-verification drive at the clearing corporation to check the incidence of bad paper has aided the investor sentiment.
Technology: With almost all Indian exchanges on-line and the major ones adopting latest hardware software upgradations, exchange heads have realised that technology cannot be a one-time cost factor. Crucially for the NSE, with electronic fund transfer operations on through Global Trust Bank and HDFC, the process of bank payments would be more streamlined as brokers and/or their clients may not have their original accounts with these banks.
The NSE will now focus on new product innovations, cost-effectiveness and providing greater investor service.
