Mumbai: London Stock Exchange Plc. (LSE) and New York Stock Exchange Euronext (NYSE) may pick up a 5% stake each in India’s newest stock exchange, MCX Stock Exchange Ltd (MCX–SX), according to two persons close to the development.
Overseas call: A trader at MCX-SX. A single corporate investor cannot hold more than 5% in an exchange. Amit Bhargava / Bloomberg
MCX-SX is promoted by Financial Technologies (India) Ltd (FTIL) and Multi Commodity Exchange of India Ltd (MCX). Both the promoters are required to pare their stakes to comply with ownership regulations of the capital market watchdog Securities and Exchange Board of India (Sebi). They need to do it by 15 September, a year after MCX-SX started currency futures trading.
A person close to the divestment process of MCX-SX said at least four new domestic banks are also in the final stage of discussion to pick up minority stakes in the exchange. If that happens, shareholding of banks in MCX-SX will rise from 18% to 25%
“LSE and NYSE have shown interest to pick up 5% stake each at a price of around Rs35 per share,” said this person, who declined to be identified as the deals are yet to take shape.
While LSE can directly pick up a 5% stake in MCX-SX, NYSE will take slightly less than 5% as it has an indirect holding in MCX-SX through its shareholding in the parent company, MCX, he added.
According to Sebi guidelines, a foreign investor can have a 5% stake in a stock exchange directly or indirectly. Since NYSE holds a 5% stake in MCX, it cannot have a full 5% stake in MCX-SX.
A single corporate investor is not allowed to hold more than 5% in an exchange. However, stock exchanges, depositories, clearing corporations, banks, financial institutions, insurance firms and mutual funds can hold up to 15%, provided they are domestic entities.
Raymond Pellecchia Jr. of NYSE Euronext corporate communications and Jonny Blostone of the press office of LSE group declined to comment.
An email sent to MCX-SX did not elicit a response and an MCX-SX official told Mint that top executives were out of the country and hence could not be reached for comment.
The promoters have appointed Deutsche Bank AG, Nomura Financial Advisory and Securities Ltd and Antique Capital Markets Pvt. Ltd as investment bankers to oversee the divestment process.
“Since mid-July, the company has made presentations across the US, Europe and Asia. So far, about 25 foreign investors, including stock exchanges, have been met. There are a few Asian and South Asian exchanges as well who have shown interest to pick up stakes in MCX-SX,” the person said. Going by Sebi norms on ownership in exchanges, both the promoters are required to bring down their stakes to 15% each. The exchange started trading in currency futures in mid-September and subsequently approached Sebi with its plan to start equity trading.
However, it has not got the Sebi nod yet because of high promoter holdings in the exchange. It had started currency futures trading with an understanding with the regulator that promoters’ holding would come down in one year.
Since September, the promoters’ holdings have come down from 100% to 70%. A group of banks including Bank of India and Union Bank of India hold 25% stake in the exchange and IFCI Ltd holds 5%. In July, the exchange sold a 5% stake to IFCI for Rs250 crore, valuing the firm at Rs5,000 crore.
While IFCI and other institutional investors are paying Rs35 per share for the MCX-SX stake, local banks are buying at a cheaper rate of Rs10 a share.
An official of one of the investment banks appointed by the exchange said MCX-SX may receive the Sebi approval for equity trading after bringing down the promoters’ stake to 40% from 70%. The official requested anonymity.
It is, however, not clear whether Sebi would permit MCX-SX to start stock trading after the promoters bring down their stakes to 20% each.
MCX-SX started trading in currency futures in September, and with a turnover of about Rs3,000 crore, the exchange has nearly 50% market share in currency futures trading.
While its plan to start equity trading has not yet got Sebi’s nod, MCX-SX also wants to start interest rate futures trading. National Stock Exchange of India Ltd (NSE), which competes with MCX-SX in currency futures trading, on Tuesday got Sebi approval for interest rate futures trading. NSE will start trading in interest rate futures on 31 August. “Eight private and public sector banks collectively have bought 18% stake in MCX-SX. Four more banks are at the final stages of buying stakes,” another investment banker who is associated with the exchange’s stake sale said on condition of anonymity.
Following this, overall banks’ shareholding in the exchange will go up to 25%.
The MCX-FTIL combine runs 10 exchanges across various asset classes, such as bullion, crude, currency and power, in India and overseas.
Recently, MCX-SX has tied up with FTSE, the joint venture company of the Financial Times newspaper and LSE, to offer various global equity and fixed-income products and indices for domestic investors.