India’s duopolistic equity market structure could be under threat, following a high-profile decision by the Bombay High Court in favour of upstart venue MCX Stock Exchange (MCX-SX).
Founded in 2008, MCX-SX is currently only permitted to trade currency derivatives – despite its ambition to become a recognised stock exchange offering equities and equity derivatives. Previously, Indian regulator the Securities and Exchange Board of India (SEBI), had blocked MCX-SX’s petition to be allowed to expand its business.
However, the Bombay High Court determined that SEBI’s decision had been unsound and overturned its objections on several grounds. In particular, the court found that two of the exchange’s backers – MCX and Financial Technologies – had reduced their combined holding below 5% in accordance with Indian law, despite SEBI's initial objections.
Until now, the vast majority of equities trading in India has been divided between just two venues – the older Bombay Stock Exchange, and its main rival, the National Stock Exchange, which trades around 80% of equity volumes. Smart order routing was approved in India in August 2010, but disagreements between the two exchanges delayed its uptake.
Recent months have brought other signs that the duopoly may be cracking. In November, long-defunct but recently revitalised venue the Delhi Stock Exchange (DSE) signed a contract with the London Stock Exchange (LSE) to receive new trading technology through LSE’s MillenniumIT subsidiary.
The DSE was originally established in 1947 but had not traded for a decade because of a dispute in which its broker owners were to forced by Indian regulators to divest their collective stakes to less than 50% of total ownership.