Investor Issues
MCX-SX goes live with SX40 on a cautious note

MCX-SX, the newest stock exchange, clarified that it is in no hurry to garner market share or increase volumes by cutting prices. Is it because of its sour relations in the past with the regulator or is the sibling of MCX being modest?

MCX Stock Exchange (MCX-SX) has begun live trading in equities and equity derivatives from Monday with its 40-stock index—SX40. Being a part of Financial Technologies India (FinTech) and the Multi-Commodity Exchange (MCX) group, one would expect the new stock exchange to be aggressive. However, looking at the past fractious relationship with the regulators, neither MCX-SX nor its top honchos are willing to show their aggressiveness, at least not openly.


In fact, Jignesh Shah, vice-chairman of MCX-SX repeatedly ruled out “setting any target” for the new bourse. He said, “We have not set any volume level target (for MCX-SX). This (volume game or market share) is not a 100-metre race but it is a marathon. We have a set up for long-term and we want to be on a solid and firm footing.”


Ashok Jha, former finance secretary and current chairman of the advisory board of MCX-SX, while admitting that competition benefits everyone, said, “We are not looking at market share but we want to broaden the market and take it to deep levels across the country.”


MCX-SX has a member base of over 700, out of which 405 members have received approval from market regulator Securities and Exchange Board of India (SEBI). “Lower costing in the price-sensitive options segment should help the company generate some volumes on the exchange. MCX—the commodity bourse—has over 2,200 members, and MCX-SX too should increase its membership base over time. We expect MCX-SX’s membership base to exceed 1,500 by FY15,” said a brokerage.


However, MCX-SX is treading cautiously on the price front. In the countdown to MCX-SX’s launch of equity products, the National Stock Exchange (NSE) lowered its deposit and net worth criteria by up to 50%, offset the annual membership fee of Rs1 lakh for brokers with transaction charges, and reduced connectivity cost by 50%. It must be noted that MCX-SX, in its introductory membership drive offered entry-level membership at Rs25 lakh, including Rs5 lakh as membership fee and Rs20 lakh as deposit.


Shah, while replying to a question said, “NSE (charges) is still high. I don't think we would reduce our charges at the moment. We will keep it optimally priced.”    


BSE, which has a legacy of 132 years, currently operates at significantly lower prices. Despite this, the NSE never felt the need to cut down its prices, until MCX-SX’s arrival. Even, MCX, the leader in commodity exchange with 86% market share, never reacted to lower pricing strategies adopted by its peers. Thus, the move by NSE to reduce prices only indicates the threat it perceives to its market share by MCX-SX.


However, looking at its past relations with the regulator, MCX-SX is not showing any aggression, at least at the moment, and most probably looks for the right opportunity to expand its market share and increase volume to take over incumbents.


SX-40, can it take on Sensex and Nifty?

There are 1,116 companies currently listed on MCX-SX. The bourse has come out with its own index, SX40 comprising large-cap and liquid stocks. The new index has 40 companies from basic materials (4.7% weightage), consumer goods (18.2%), consumer services (0.7%), financials (22.0%), health care (5.1%), industrials (14.8%), oil & gas (14.8%), technology (14.2%), telecom (2.4%) and utilities (3.1%).


MCX-SX’s SX40 has a base of 10,000 points and as on Saturday, it was valued at 11,419.17. The index is designed to measure the economic performance with better representation of various industries and sectors based on ICB, a leading global classification from FTSE. The stocks in SX40 have an industry cap at 20%, plus or minus 2% band. The index allows entry for companies with better free float, market cap and liquidity. SX40 includes companies have a minimum free float of 10% and is within the top 100 liquid companies.


Chequered past with the regulator

Last April, the Supreme Court asked SEBI to consider within three months the application of MCX-SX seeking permission to launch an equity trading platform, which was previously rejected by the market regulator. SEBI had approached Supreme Court after the Bombay High Court set aside a SEBI order rejecting permission to MCX-SX.


The apex court passed the order on the basis of a consensus reached between SEBI and MCX-SX vis-a-vis amendment to the MIMPS (manner of increasing and maintaining public shareholding in recognised stock exchanges) rules which the stock exchange also agreed to adhere to.


In the past, MCX-SX had been forced to seek legal redress because of SEBI’s silent favouritism. Between August 2009 and August 2011, NSE was not levying any charges on currency derivatives and was cross-subsidising it through its monopoly in the equity derivatives market and near-monopoly in the cash segment. SEBI’s refusal to check such predatory pricing forced MCX-SX to approach the Competition Commission of India. In June 2011, the Commission found NSE guilty of abusing its dominant market position and asked the bourse to stop subsidising its services for the benefit of competition.


Shortage of gas forces Ratnagiri Gas & Power to shut down operations

Due to shortage of gas, the company—promoted mainly by NTPC and GAIL—has been generating only half of the installed capacity of 1,967 MW for than two years

Ratnagiri Gas and Power, formerly known as Dabhol Power, said it has completely shut down power generation for want of gas since Thursday.


“We have stopped generation from all the three units as we are not receiving gas from any of our sources—Reliance and ONGC,” a company spokesperson said.


Due to shortage of gas, the company—promoted mainly by NTPC and GAIL—has been generating only half of the installed capacity of 1,967 MW for than two years.


“With the available gas, we could run only one unit, which too was nearly 50% lower than its capacity at 200-245 MW. But since Wednesday, we are not receiving gas from any of the sources,” he said.


To run the project at full capacity, the company needs 8.5 mmscmd (million metric standard cubic meter per day) of gas, of which 7.6 mmscmd should come from Reliance Industries and the remaining from ONGC through GAIL.


Since last two years, the company is facing the issue of gas shortage, the spokesperson said, adding “in FY12, we received only 6.6 mmscmd gas and in FY13 till January, we received only 3.2 mmscmd. This has resulted in a generation loss of around 7,500 million units.”


“Imported gas is very costly. If we use this gas, the generation cost will increase and there will be no takers for the power. Power generated from coal is available at Rs2.50-Rs3 per unit. If we use the imported gas, the power will be as costly as Rs10 per unit," the official said.


Currently, the plant supplies 95% of the power generated to Maharashtra and 2% each to Dadra and Nagar Haveli and Daman and Diu, and 1% to Goa.


SEBI grants more time to Diageo for USL open offer

While granting its approval to the request, SEBI said that Diageo will have to pay an interest of 10% per annum for the period of delay to the public shareholders tendering their shares in the open offer

UK-based Diageo has requested the market regulator Securities and Exchange Board of India (SEBI) to allow it to launch an open offer for purchase of shares in United Spirits (USL) after receipt of all regulatory approvals.


While granting its approval to the request, SEBI said that global liquor major Diageo will have to pay an interest of 10% per annum for the period of delay to the public shareholders tendering their shares in the open offer.


The new schedule would be announced after all the regulatory approvals, Diageo’s manager for the open offer, JM Financial, said in a notice to shareholders.


On 31st January, SEBI had cleared an open offer by Diageo for purchase of 26% stake in USL, which is part of a $2 billion deal involving the UK-based company acquiring a majority stake in the Vijay Mallya-led UB group firm.


However, the deal is yet to be cleared by fair trade regulator CCI (Competition Commission of India).


As per SEBI’s letter dated 31st January, the letters of offer needed to be dispatched to public shareholders within seven days and the share tendering period was supposed to begin within next five days that is no later than 18th February. Subsequently, the payment to all shareholders was required to be completed by 18th March.


However, JM Financial, which has been appointed as manager to offer by Diageo, requested the market regulator that the tendering period should be allowed to commence within 12 days of receipt of all applicable statutory approvals.


SEBI has accepted the request with a condition of additional interest payment for the delay and Diageo would announce the revised schedule in due course.


As part of the deal for purchase of 53.4% stake in Vijay Mallya-led UB group's USL worth over Rs 11,167 crore, Diageo has made a Rs 5,441 crore open offer for purchase of 26% stake in the company from non-promoter shareholders.


The open offer, which was made about three months ago soon after the deal announcement on 9th November, has been now cleared by SEBI after numerous clarifications sought by the regulator and the subsequent representations made to it in this regard.


As part of the deal, Diageo would acquire 27.4% stake for Rs5,725.4 crore through a combination of share purchase from existing promoters and preferential allotment of shares. In addition, it had offered to acquire an additional 26% stake for Rs5,441.07 crore through an open offer for public shareholders.


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