The stock exchange space has become increasingly competitive ever since the launch of MCX Stock Exchange (MCX-SX) and the change of guard at the Bombay Stock Exchange (BSE). There is a positive side to this, since it has led to lower costs and better services. Almost every other week, exchanges are lowering minimum deposit levels and fees and are offering better technology and services.
But intense competition doesn’t come without its share of problems. There have been public charges of anti-competitive behaviour against the National Stock Exchange (NSE). MCX-SX has charged NSE with “predatory pricing” in the currency futures segment, with the intention of killing competition. It has approached the Competition Commission of India, seemingly after the Securities and Exchange Board of India (Sebi) refused to intervene. BSE has complained to Sebi that NSE is dragging its feet in approving smart order routing, a technology which will enable a broker to electronically execute a trade at the best possible price after comparing quotes on both exchanges. These aren’t the only instances of alleged unfair competitive practices, and this is also not to say that the practices of the other exchanges are above board.
But from the examples above, it’s evident that the markets regulator is increasingly being asked to look into charges of unfair competitive practices. This is something it hasn’t done in a long time, given the lack of strong competition previously. Is the regulator equipped to judge on the new issues the markets are facing, especially since some of issues are related to the use/abuse of technology?
Thus far, the regulator has done well to not pass judgement on each issue that arises. In many such cases, it would be seen as taking sides. Having said that, it needs to put more pressure on exchanges and ask them to sort out their differences quickly. The smart order routing issue has dragged on for months. Given the perception that it is in the interest of one exchange to drag its feet, a further delay in resolving this issue should not be accepted by the regulator.
From a broader perspective, it must be noted that increased competition in the exchange space will throw up myriad issues. Rather than solving each one on a case-by-case basis, the regulator should sanction a broad framework for conduct of stock exchanges and stock brokers. It’s time India has the equivalent of guidelines such as Regulation NMS (National Market System) in the US and Mifid (Markets in Financial Instruments Directive) in Europe, which has enhanced competition in developed markets.
How well is Sebi handling the increase in competition among exchanges? Tell us at firstname.lastname@example.org