India braced for next stage of exchange competition

Upstart Indian stock exchange MCX-SX has cleared the last regulatory hurdle to becoming a bona fide bourse, with the country's Ministry of Corporate Affairs granting the organisation the status of 'recognised stock exchange'.

Upstart Indian stock exchange MCX-SX has cleared the last regulatory hurdle to becoming a bona fide bourse, with the country’s Ministry of Corporate Affairs granting the organisation the status of ‘recognised stock exchange’.

“The government’s seal to MCX-SX as a recognised exchange is a huge development for us as it provides a level playing field to MCX-SX by bringing the exchange on par with other national exchanges,” said Joseph Massey, CEO of MCX-SX.

The acknowledgment is the culmination of a long battle to become the country’s third exchange. Last March a decision by the Bombay High Court forced the Securities and Exchange Board of India (SEBI) to allow MCX-SX to offer equities trading.

Further competition in equities has proved a big draw in the country where two exchanges already compete – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) – which in December accounted for 17.5% and 82.5% market share respectively.

Already, MCX-SX has received 700 applications for new membership, which the bourse believes is “a world record for an exchange before going live”. Over a hundred of these have been approved by SEBI and the rest are in process. MCX-SX has already connected some members and is waiting for a critical mass of registration so that the new segment can go live.

The government approval came barely days after the rubber stamp was given to MCX-SX by SEBI. On 19 December, the SEBI granted a ‘commencement certificate’ – regulatory status which means companies can list their initial public offerings exclusively on MCX-SX and choose the bourse as their designated stock exchange.

“While this allows both public and private sector companies to list on MCX-SX, we, on our part, remain committed to bringing global standards of listing practices in India,” said Massey. “There will be a remarkable difference in listing service standards in the industry with MCX-SX.”

A mock testing session for its new capital narket segment was held on 19 November to familiarise participants with the new trading platform.

Yet many question the advantages of a fragmented market when there is no central clearing infrastructure. Currently, the BSE and NSE own their own clearing houses. As far back as April 2011, SEBI was known to be examining solutions to the lack of interoperability between the country’s two securities clearing houses but nothing has yet to come to fruition.

SEBI initially permitted smart order routing between the BSE and NSE in August 2010 but take-up has been relatively low as any possible trading cost savings from best price discovery is offset by the country’s high post-trade fees, stemming from the absence of clearing interoperability.

A MCX-SX spokesperson said he was unable to provide any details of possible smart order routing or clearing interoperability plans at the bourse.

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