Kept on ‘watch list’, MCX promoter set to take NSE to court

Kept on ‘watch list’, MCX promoter set to take NSE to court

Mumbai: Financial Technologies (India) Ltd, promoter of Multi Commodity Exchange of India Ltd (MCX), the country’s largest commodity exchange that has at least an 80% share of the business, is preparing for a legal battle with National Stock Exchange of India Ltd (NSE) for allegedly keeping it on a “watch list" and rejecting its application for providing software for currency futures trading without assigning any reason.

Financial Technologies has already a sent a legal notice to this effect to NSE.

The country’s largest stock exchange placed Financial Technologies, which makes software for brokers to connect to and trade in the exchanges, on a “watch list" two months ago, said Dewang Neralla, the firm’s director (technology).

“NSE hasn’t explained to us what a watch list means, what this entails and what it will lead to," he said. “They didn’t even inform us about the watch list at first, instead advising our clients."

Financial Technologies is a software vendor with an accreditation from NSE.

Neralla confirmed that his company has indeed sent a legal notice to NSE. “We are talking to our lawyers. The next step will be based on their advice."

NSE spokesperson K. Hari refused comment on the development.

Financial Technologies provides brokers access to most product segments on the Bombay Stock Exchange Ltd (BSE), MCX and the National Commodity and Derivatives Exchange Ltd, besides NSE.

MCX-SX, a stock exchange promoted by MCX and Financial Technologies, competes with NSE in the currency futures markets where the two are almost neck and neck in terms of turnover.

NSE was the first exchange to kick off trading in this segment on 29 August and MCX-SX started its operations about a month later.

The Indian currency futures market, which now clocks volumes of at least $400 million (at least Rs2,000 crore) daily, is dominated by these two exchanges.

The third exchange, BSE, has less than 5% market share in currency futures.

According to Neralla, NSE has not cited any reason for placing Financial Technologies on the so-called “watch list", but sent two letters to the software vendor a year ago, on technical and business issues.

“We did respond on both occasions and these issues were closed there and then," said Neralla, who declined to provide details of these issues.

Financial Technologies also alleged that NSE is delaying the approval process to those brokers who want to use its software. NSE has declined to give a program interface that will allow brokers to connect to currency futures trading at the exchange, Neralla claimed.

A program interface communicates between computers. If NSE offers the interface, Financial Technologies can customize its software, called Odin, to connect to the exchange’s trading platform for currency futures.

NSE has allegedly refused to give this code to Financial Technologies since it has been placed on the “watch list". Incidentally, NSE has supplied this code to other software vendors such as Omnesys Technologies Pvt. Ltd for currency futures trading.

“People are concerned. If approvals are getting delayed, we may lose business. Brokers renew the licence for using this software every year," said Neralla.

An official belonging to a Chennai-based equity brokerage said NSE hasn’t granted approval to an application to use Financial Technologies’ Odin software for Internet-based trading.

“We sought the approval in August, but so far we haven’t got any written communication okaying its use," the official said on condition of anonymity.

Financial Technologies claims 80% share of the market for such software that allows brokers to access different products on different stock exchanges on a single screen. It claims to have sold 400,000 licences. One licence is used to access one market segment such as the cash segment on BSE or the futures and options on NSE.

The company holds a 32% stake in MCX. NSE, too, holds about 2% in MCX. Incidentally, Financial Technologi1% stake in NSE.

Shares of the company rose 2.26% to close at Rs557 each on BSE on Tuesday even as the exchange’s benchmark index, the Sensex, fell 1.14%.