USE in talks with BoA, Goldman, StanChart

USE in talks with BoA, Goldman, StanChart

Mumbai: United Stock Exchange of India Ltd (USE) is in talks with Bank of America (BoA) Merrill Lynch, Goldman Sachs and Standard Chartered Bank Plc. (StanChart) to sell stakes in the bourse, said its managing director and chief executive officer T.S. Narayanasami.

“We are informally in talks with them," Narayanasami said. “We hope to finalize our shareholding pattern by 10 September."

USE is India’s newest financial exchange and will focus on currency futures and interest rate futures. It was incorporated in October and is expected to commence trading in September.

Goldman Sachs, BoA Merrill Lynch and StanChart declined comment.

USE wants the three financial institutions to pick up a 5% stake at Rs10 a share, according to two persons familiar with the situation who wanted to remain unidentified as they weren’t authorized to speak to the media. Further, these shares would be locked in for three years.

This is the maximum these entities can own in a stock exchange according to Securities and Exchange Board of India rules, which stipulate that a single corporate investor cannot hold more than 5% in a bourse.

However, banks, stock exchanges, clearing corporations, insurance companies and mutual funds can hold up to 15% if they are domestic institutions. However, Narayanasami wouldn’t disclose what stakes USE intends to sell to BoA Merrill Lynch, Goldman Sachs and StanChart. He said the final shareholding of the institution would be roughly equally divided between public sector and private sector firms. The paid-up and authorized capital of the exchange will be Rs150 crore, he said.

“We have invited all public sector banks to have a stake in the exchange," said Narayanasami, indicating that he is also talking to State Bank of India.

According to Narayanasami, banks are the major players in the currency futures market and having a stake will prompt them to trade in USE products rather than in the National Stock Exchange Ltd (NSE) and MCX Stock Exchange Ltd (MCX-SX) that is promoted by Financial Technologies (India) Ltd and Multi Commodity Exchange of India Ltd. This, he said, will bring in liquidity and sustain trading.

Its partner, Bombay Stock Exchange Ltd (BSE), failed to sustain trading in this segment because of liquidity problems. According to its website, the last currency trades were three contracts (worth $3,000 or Rs1.44 lakh at that time) on 18 May. The around Rs9,000 crore a day currency futures market is split almost equally between NSE and MCX-SX.

USE is promoted by a clutch of banks, including Federal Bank Ltd, Oriental Bank of Commerce, Canara Bank, Indian Overseas Bank, Bank of Baroda and HDFC Bank Ltd. It also has exporting firm MMTC Ltd and Jaypee Capital Services Ltd as shareholders.

Three weeks ago, BSE, Asia’s oldest exchange, picked up a 15% stake in USE for Rs25 crore. As part of the deal, BSE will provide technology and manage operations for currency futures trading while USE will do the marketing.

In other words, BSE will withdraw its currency futures and provide the platform for USE products. The two exchanges have agreed to extend the deal to interest rate futures, which are yet to be launched.

Anita Bhoir contributed to this story.