Stock exchanges are witnessing changes in their landscape in the last few days. The Hyderabad Stock Exchange (HSEL) exited stock trading business, and a new nation-wide entrant, MCX-SX, started trading in equity and equity derivatives segment.
There are at present 25 stock exchanges across the country most of which are regional in nature and non-operational. Only five have trading platforms, which includes National Stock Exchange (NSE), Bombay Stock Exchange (BSE), MCX Stock Exchange (MCX-SX), United Stock Exchange (USE) and Calcutta Stock Exchange (CSE). Among them, USE is a currency trading platform.
The CSE, in the meanwhile, has made a proposal to other regional stock exchanges to consolidate with it. “Already the Bhubaneswar Stock Exchange has agreed, and other stock exchanges are discussing the matter,” said B. Madhav Reddy, Managing Director and CEO of CSE. This is the only regional stock exchange which conforms with SEBI requirement of minimum Rs.100 crore net worth and Rs.1,000 crore trading volume on their own platform to run a stock exchange.
The entry of MCX-SX will help in the long run diluting the dominance of one exchange in the market place, says Arun Kejriwal, Founder, Kejriwal Research & Investment Services. “Over-time, domination led to an institution-promoted exchange to behave in a similar fashion as a broker-promoted exchange behaved in earlier years,” said Mr. Kejriwal.
The NSE has a market share of 83 per cent in the cash segment and 79 per cent in derivatives. Over the years, its products such as Nifty and Gold ETF’s have become popular among investors. At the same time, products such as Bank Nifty and stock options have also seen good growth. “We are constantly trying to come up with innovative products, and will be launching some new products after the regulator’s approval,” said Divya Malik Lahiri, spokesperson for the NSE.
In the present market scenario, market participants expect better efficiency, dissemination of information and better use of technology which would reduce cost. Once MCX-SX was cleared by the Securities and Exchange Board of India (SEBI) last calendar year, the NSE brought down its transaction fees.
If MCX-SX wants to be a successful stock exchange, it has to bring in measures to lower costs, better technology and financial literacy.Mr. Reddy says if other regional stock exchanges consolidate with CSE, their members will get an opportunity to trade in stocks of NSE, BSE and CSE as well.
As competition has intensified, what the exchanges need the most is transparency. Last year, the regulator had allowed stock exchanges to be listed on other than its own exchange. This would bring more transparency to the exchanges. It was stipulated that 51 per cent stake of an exchange could be with the public. However, this listing norm is not mandatory, but only by choice. Since this announcement, MCX commodity exchange was the only exchange which was listed so far.
On listing, Mr. Reddy said that “though we are not close to that, in the long run we may consider it.”
BSE is now planning to list, according to market sources. However, its spokesperson, when contacted, preferred not to comment. The NSE is not in a hurry to list. Said Ms. Lahiri, “It’s too early to talk about listing.”
MCX-SX has recorded low turnover volume in the last few trading days compared to other exchanges. Joseph Massey, Managing Director and CEO of MCX-SX, said that the exchange was working on the Liquidity Enhancement Scheme under SEBI’s framework.
Once introduced after due process, it would have a catalytic effect.