MCX-SX, India's newest stock exchange, has got off to a quiet start in its bid to become a serious rival to the country's two incumbent bourses, registering low volumes in its first three days of trading, following its launch on Monday.
The exchange saw only 6.9 million rupees ($128,000) in equities traded on its first day on 11 February, falling to 2.8 million rupees on its second day, and rebounding to 6.7 million rupees on Wednesday. In comparison, the National Stock Exchange (NSE), India's largest, traded around 95 billion ($1.76 billion) in cash equities.
One industry insider, who asked not be identified, said that most of the volumes in the first day of trading were accounted for by "friends of the organisers, to let them show the venue had actually gone live".
The upstart exchange is unlikely to have the NSE, or its older rival, the Bombay Stock Exchange (BSE), overly concerned just yet. Even with one of MCX backers being Financial Technologies, a trading technology firm, there were reportedly hitches with prices going out to members for an hour on the first day, along with problems with the exchange's website.
However, with MCX already having built successful commodity and FX derivatives platforms, and a track record in innovation, some believe the exchange will have the capability to become a significant alternative to the BSE and NSE in time.
"A stock exchange is a market infrastructure institution which requires a long-term approach like a marathon and not like a sprint race. We would focus on systems, process and compliances and volumes should build up steadily," said Joseph Massey, managing director and CEO of MCX Stock Exchange, in a statement. "We are working on the liquidity enhancement scheme under Securities and Exchange Board of India (SEBI's) framework and after due processes it will be introduced and will have a catalytic effect."
MCX was finally given permission to move into cash equities and derivatives in December last year, following a protracted legal battle amid opposition from the incumbent exchanges.
Another industry source suggested that MCX would only have a positive effect on India's capital markets if, "it can bring in new investors, rather than just cannibalise volumes from the other exchanges".
Nevertheless, the increased competition should spur a response from the two incumbents, according to Parshant Mittal, director at quant-based hedge fund Way2Wealth Illuminati Securities, "Exchanges will look to differentiate themselves through innovation in technology and products that they offer."
Though with little room for product innovation in the equities space within the framework of India's relatively restrictive regulatory environment, some market participants have suggested that MCX will struggle to bring anything new to the table to take share from its more established and larger rivals. Attracting foreign investors, who have recently been returning to India's markets following an exodus due to uncertainty surrounding regulatory and taxation issues, is also likely to prove a challenge.
MCX-SX launched with 1,116 companies listed for trading and 405 members approved by the SEBI, out of 700 applications received. The exchange is operating its own clearing system for equities and equity derivatives. The new bourse will also launch its SX-40 index of leading equities in the near future.