Mumbai: The nation’s biggest bourse, National Stock Exchange of India Ltd (NSE), is planning to go global.
The exchange, which started operations in 1994 with a fully electronic trading platform, the first in the country, is in talks with potential partners in different markets to explore new business opportunities.
NSE is looking at forming joint ventures with overseas companies to start businesses in the market infrastructure space—ranging from setting up new exchanges to clearing houses, offering exchange-traded products, settlement services and data distribution, among others.
It is keen on joint ventures for allied services rather than setting up new exchanges, Ravi Narain, NSE’s non-executive chairman, said on Thursday in an interview.
Associated with the exchange since it was set up in 1992, Narain, 57, spent six years as deputy managing director and 12 years as managing director and chief executive officer before laying down office on 31 March.
“We do not have a geographical fixation. We are looking at the right markets. We will not march into a market to put the NSE flag there. What we are looking at are right partnerships...the DNA has to match,” Narain said.
He did not divulge the names or geographical locations of potential partners with which NSE has been holding talks, but indicated that the exchange will be looking at emerging markets, to begin with.
“There can be equity partnerships as in JVs (joint ventures), but to march into another emerging market and say I am going to plant my NSE flag is futile. We are open to any interesting geography and we are certainly having engagements and conversations,” Narain said.
Its flagship 50-share index, the Nifty, has a presence in 12 countries, but as an exchange, NSE has not started any business venture anywhere so far.
NSE’s indices lost the S&P tag after S&P Dow Jones Indices and the exchange decided not to extend their agreement after it expired in January. BSE Ltd, NSE’s older rival and Asia’s oldest bourse, was quick to snap up the opportunity. Its equity indices now carry the S&P prefix. They are calculated, disseminated and licensed by S&P Dow Jones Indices.
Narain said that when the Nifty was formed, the branding had been necessary, but now it’s a well-known brand and has got strong momentum.
Promoters of NSE’s newest rival, MCX Stock Exchange Ltd (MCX-SX), which recently started trading in equities, has an overseas presence, but through a different business model.
Promoted by Financial Technologies (India) Ltd and Multi Commodity Exchange of India Ltd (MCX), MCX-SX has opened commodity exchanges across geographies—the Dubai Gold and Commodities Exchange, the Singapore Mercantile Exchange, Global Board of Trade (Mauritius), the Bahrain Financial Exchange and Bourse Africa.
NSE is planning a different model, based on partnerships with overseas exchanges.
Narain said NSE is also looking for newer products. After launching option contracts with strike prices based on the volatility of the underlying security, it has applied to the capital market regulator to launch futures and options contracts, based on its volatility index, India VIX.
“The VIX has become a very well-accepted measure of volatility in the market,” Narain said. “As and when Sebi (Securities and Exchange Board of India) gives permission, we will launch products... We would also like to launch more ETFs (exchange-traded funds).”
NSE wants to hold an initial public offering (IPO), but the plan has not firmed up as yet. It is in the process of complying with regulations for market infrastructure institutions (MIIs). In 2012, Sebi broadly accepted recommendations of a committee on MIIs and allowed stock exchanges to raise money from the public by listing their own shares.
In 2007, NSE sold a 20% stake to the New York Stock Exchange and three others for $490 million (around Rs.2,670 crore today), valuing itself at $2.3 billion.
“Right now, we are in the midst of complying with Sebi norms. As and when we complete compliances for an IPO listing, the board will apply its mind,” he said, declining to give any time frame for the proposed listing. “It depends completely on the board... We are waiting to complete the compliances in the context of things like board positions, stake holding, etc. We are rapidly complying with those, but we are not done,” said Narain.
The exchange’s older rival BSE is planning to raise Rs.1,250 crore through an IPO by the year end.
In April 2012, when Sebi allowed exchanges to raise capital from the public through the listing of shares, it said a single stock exchange can’t hold more than 51% in a clearing corporation. A stock exchange holding 51% in one clearing corporation cannot hold more than 15% in any other such entity.
NSE has a 100% stake in its clearing house National Securities Clearing Corp. Ltd.
According to Sebi, no single investor can hold more than 5% in exchanges, except for banks and financial institutions. These entities may hold up to 15%.
Sebi has also mandated that stock exchanges should have a diversified ownership with 51% public shareholding.
As of 31 March, insurance companies held an 18.34% stake in NSE and foreign institutional investors held 13.84%. Foreign direct investment holding in the exchange was 21% while venture capital funds had a 3.35% stake.
NSE holds at least 10% of National Commodities and Derivatives Exchange Ltd and at least 25% of National Securities and Depository Ltd.
A graduate of St Stephen’s College in New Delhi, Narain studied economics at the University of Cambridge and did his MBA from Wharton at the University of Pennsylvania. He started his career in Washington as an economics and policy consultant at ICF (Inner City Fund), a consultancy firm for the US government, before joining the erstwhile Industrial Development Bank of India in 1980s from where he joined the founding team of NSE.
Narain will only come to NSE headquarters at Mumbai’s Bandra Kurla Complex to attend board meetings while his long-term deputy Chitra Ramkrishna has taken over in the corner room. Narain said he has enormous confidence in Ramkrishna’s capability in meeting the mounting challenges in the exchange space as only a very small part of domestic savings flows into equities in Asia’s third largest economy, even as competition is intensifying with the arrival of MCX-SX.
As for Narain, he plans to do “a bunch of things” now that he is out of his executive role at India’s premier exchange, but he declined to spell out what these could be. Fishing, he said with a smile, is not one of them.