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Narain defends NSE in letter to govt, RBI

Narain defends NSE in letter to govt, RBI

Mumbai: The National Stock Exchange of India Ltd (NSE), the country’s largest equities market, has mounted a vigorous defence of itself in a letter addressed to key government officials, the Reserve Bank of India (RBI) governor and the chairman of capital market regulator Securities and Exchange Board of India (Sebi).

Ravi Narain, managing director of NSE, lashed out in the letter at what he said were efforts that sought to “denigrate the growth and development of capital markets in India".

The letter has also been sent to finance secretary Ashok Chawla, Planning Commission deputy chairman Montek Singh Ahluwalia and C. Rangarajan, chairman of the Prime Minister’s economic advisory council, said an NSE official on condition of anonymity. A copy of the letter was reviewed by Mint.

Narain wrote that the letter was prompted by misleading news reports and articles based on data submitted by NSE in response to questions in Parliament by Rajya Sabha members Sukhdev Singh Dhindsa and Mohammed Adeeb on 10 August.

Minister of state for finance Namo Narain Meena said in a written reply that over three million investors had traded in the cash equities segment between April and June, and as many as 557,000 clients had participated in futures and options. He also gave details of the number of clients contributing to 50%, 60%, 70%, 80% and 90% of trades. NSE’s top 25 trading members accounted for over 40% of volumes in the cash equities and derivatives segments, Meena said.

NSE says the figures were “selectively quoted" in some media reports to provide a wrong picture. The reports suggested that the Indian capital market’s growth was skewed, based on the contribution of a top few clients in total trading activity.

“As you are no doubt aware, in the capital market it is natural for large institutional investors to be major contributors in total volumes," Narain said in his letter. “When we consider that money invested by these institutional players is also made up of contributions from a large retail investor population, it becomes clear that client base is by no means modest."

Narain pointed out that major global exchanges such as the New York Stock Exchange had 38% of trades being made by the top 10 brokerages, while in Bursa Malaysia and Johannesburg it was 66%, responding to the point that the top 10 brokerages contributed 24% of NSE’s volumes.

Dinesh Thakkar, chairman and managing director of Angel Broking Ltd, a retail brokerage with over 600,000 clients, said: “My views are a little different from what came up in the Parliamentary discussion. I feel we’ve a sufficiently broad investor base considering our per capita income is around $1,000 (Rs46,900). There are about 10 million unique client IDs, and extrapolating from my market share I assume that about 7-8 lakh retail clients would trade everyday. That’s quite broad-based. That’s the case worldwide."

Thakkar said NSE has a leadership position in equities at present just as MCX enjoys leadership in commodities.

The NSE letter follows MCX Stock Exchange Ltd’s (MCX-SX) recent advertising campaign. MCX-SX, which is waiting for Sebi approval to commence equities trading, explained how approvals have been delayed in its advertisements. It also took the market regulator to court.

Business Standard had reported on 12 August that Joseph Massey, managing director and chief executive of MCX-SX, also wrote to the Sebi chairman, alleging the regulator was favouring NSE. He said Sebi’s amendment on 23 December 2008 increasing shareholding limit from 5% to 15% for five categories of investors was “tailor-made to benefit NSE and OTC Exchange of India", the paper reported.


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