Strong stance by MSCI on ban on sharing market data outside India; asks BSE, NSE and SEBI to reconsider
MSCI Inc, a provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools, has asked Securities and Exchange Board of India (SEBI), as well as National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Metropolitan Stock Exchange (MSEI) to reconsider their move of impose anti-competitive measures and restricting access to Indian equity market.
In a strong statement, MSCI said, "...the breadth of the restrictions announced by the Indian exchanges is unprecedented in any equity market in the MSCI Emerging Markets Index series. MSCI strongly suggests the Indian exchanges and their regulator, SEBI, reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI Indexes."
Last week, NSE, BSE and MSEI together announced that they will no longer provide stock exchange information to any foreign exchange or trading platform for trading or settling derivatives, and will no longer license or provide market data to any index provider or its licensees for the creation of indexes or derivative financial products based on such indexes that would be traded or settled on a non-Indian exchange or trading platform where the weight of Indian
securities in the index is at least 25%. The restriction would apply to all derivatives that are traded or settled on a non-Indian exchange or trading platform, whether they were issued by an exchange or by some other party.
The announcement also refers to the imposition of a written pre-approval restriction on the issuance of certain exchange-traded funds (ETFs) and exchange-traded notes (ETNs) or similar products based on indexes, but the full scope of the restriction is not yet clear.
MSCI says, "Based on the exchanges’ press release, we understand that the exchanges do not seek to impose a precipitous or disorderly wind down of the various products that would be affected in many markets around the world. Nonetheless, given the breadth of the application of the changes referred to in the announcement, we believe that if the changes are put into effect, the result will be disruptive and harmful to international institutional investors in Indian equities whether accessing the market onshore or offshore."
Under its market classification framework, MSCI says, anti-competitive measures restricting investors' access to derived stock exchange information receive a negative score in the Competitive Landscape category. "This is because of their negative impact on international institutional investors as the range of available financial instruments may be significantly reduced, limiting ways for cross-border investors to access a local market or to hedge an exposure to a local market," it added.
MSCI says, introduction of restrictive measures that may result in a material deterioration of the accessibility of an equity market is reviewed carefully by it in consultation with international institutional investors and other market participants and could lead to a change in market classification.