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.