Mumbai: The Bombay Stock Exchange Ltd (BSE), Asia’s oldest bourse, is discussing a possible alliance with Multi Commodity Exchange of India Ltd (MCX) to boost its declining market share and sharpen its competitive edge, said a person familiar with the development.
According to the plan, India’s largest commodity exchange MCX and its promoter Financial Technologies India Ltd will help the 133 year-old BSE-run equity futures and options trading and the recently introduced currency derivatives. The two exchanges may even consider taking equity stakes in each other, said the person who didn’t want to be named.
At the helm: BSE chairman Jagdish Capoor.Ashesh Shah / Mint
Both BSE and MCX declined comment for this story.
The BSE board discussed the proposal in its meeting on 14 March and authorized its chairman Jagdish Capoor to negotiate with the MCX group. The next board meeting of the exchange is set for 9 May.
A BSE-MCX alliance, if the exchange’s board approves it, will not be the first such instance in market infrastructure globally. In the US, the Chicago Mercantile Exchange and New York Mercantile Exchange, or Nymex, are partners. All Nymex contracts are traded on the Chicago exchange’s technology platforms and the two have a non-compete agreement.
This is the second time in the recent past that BSE is considering an alliance. In December, the board considered a proposal by the newly formed United Stock Exchange of India, but, in the face of stiff resistance from some members, it fell through.
United Stock Exchange, promoted by a consortium of banks and financial institutions, wanted BSE to withdraw its currency futures and trade its contracts instead as a first step in an alliance.
The proposal also talked about common clearing houses and sharing of technology platforms between the exchanges and BSE taking a 5% equity stake in United Stock Exchange.
The new exchange, which has got the capital market regulator’s approval for currency futures trading, is yet to start operations. Its officials were unavailable for comment over the weekend.
While BSE has steadily been losing its market share and is now facing a tough and uncertain future as competition heats up, the MCX-Financial Technologies combine has floated a stock exchange.
MCX Stock Exchange, or MCX-SX, now offers trading in currency futures and wants to start trading in equities. It has already applied to the regulator, the Securities and Exchange Board of India, or Sebi, to offer equity products both in the cash segment and futures and options.
In a recent interview, MCX-SX’s vice-chairman Jignesh Shah said: “Our commitment is to take different equity and bond products to the tehsil level. No one has covered this India model so far.”
The proposed stock exchange will compete with the National Stock Exchange and BSE.
BSE’s market share has been falling ever since NSE opened some 15 years ago. For instance, in the cash market for equities, BSE had an average daily turnover of Rs2,724 crore in 1999-2000, compared with Rs3,303 crore for NSE. In the nine years that followed, during which foreign investors pumped in at least $47 billion (Rs2.35 trillion) into Indian equities, BSE’s turnover has grown to around Rs4,700 crore daily while NSE’s has multiplied more than three times to Rs11,700 crore.
Indeed, BSE has introduced new products and new technology, but that has not translated into an increase in market share.
The contrast between BSE and NSE is even starker in equity futures and options and currency derivatives segments.
Despite bringing in on board stakeholders such as Deutsche Boerse AG, the Frankfurt-based exchange, and Singapore Exchange Ltd, BSE has a minuscule share in both these products.
In the $1 billion a day currency derivatives market, MCX-SX and NSE have almost equally split the volumes. In equity futures and options, in the first 10 months of the current fiscal year between April and January, BSE had average daily volumes of less than Rs10 crore compared with Rs44,700 crore on the NSE.