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Mumbai: MCX Stock Exchange (MCX-SX), which once boasted a significant share in the currency derivatives segment, has become a fringe player, as traders switch to other exchanges over ownership and net-worth concerns as well as for lower trading fees.

The share of MCX-SX in the currency derivatives segment has fallen to an average daily volume of 2,465 crore, or 12%, sharply down from 11,650 crore, or 41%, in August 2013.

MCX-SX has lost most of its volumes to BSE Ltd, which launched its own platform in November last year. Segment leader National Stock Exchange of India Ltd (NSE), too, has seen its share dip in the past few months.

Currency derivative contracts allow investors to hedge against changes in foreign exchange rates between a pair of currencies. Exchanges in India offer rupee-dollar, rupee-euro, rupee-pound and rupee-yen contracts.

In response to an email query, an MCX-SX spokesperson said the exchange has seen challenging times for more than a year, which, along with certain policies and so-called zero pricing by other exchanges, has led to a drop in market share.

When NSE started its currency platform in 2008, it offered zero pricing: traders could use the platform free of cost. MCX-SX challenged the move in the Competition Commission of India (CCI) in 2009. NSE started levying a fee in August 2011 after a June 2011 order by the CCI, which was recently upheld by the Competition Appellate Tribunal (Compat). NSE has challenged the tribunal order at the Supreme Court.

BSE is the only exchange that does not levy any transaction charges in its currency segment. It has decided to levy charges in a phased manner from 2 per crore from 1 December to 10 from 1 October 2015. Still, these charges will be only a fraction of that of its rivals, which charge 110-120 for every crore. Data suggest the pricing strategy has done the trick for BSE.

An MCX-SX official said on the condition of anonymity that the exchange has written to the market regulator and is considering filing a lawsuit in a local court against BSE for following unfair trade practices: making it almost free for traders to do business in the currency derivatives sector.

BSE’s average currency daily turnover in September has touched 6,045 crore, or 30%, of the market—up from 12% in December, the first full month after the platform was launched in November.

“Given the proposed gradual increase in the exchange transaction charges, we believe that the participants will be able to absorb the transactions charges in their operations starting December 2014," a BSE spokesperson said, adding that membership in the currency segment has increased from 93 at the time of launch to 350.

NSE, which is a dominant platform in the equity segment with nearly 85% market share, has seen its share in the currency derivatives arena dip to 57% in September, from nearly 70% in November. In recent months, its share has been in 50-55% range.

While the overall interest in currency derivatives has dipped owing to the low volatility in the Indian currency, the shift from MCX-SX has been largely due to members losing confidence in the bourse, said Naveen Mathur, associate director, commodities and currencies, at Angel Broking Ltd. “Currency volumes have dipped across exchanges. What specifically ails MCX-SX are issues such as dwindling net worth and ownership, though reports suggest that it is trying hard to overcome. But, it has certainly taken a hit."

MCX-SX has initiated steps to distance itself with Financial Technologies India Ltd. (FTIL), which has been declared unfit to hold a stake in an exchange following a probe into 5,574.35 crore fraud at National Spot Exchange Ltd (NSEL). FTIL holds 99.99% stake in NSEL.

But this has not stopped market participants from reducing their exposure to MCX-SX as seen by the falling turnover. They say coming days would see investors squaring off their existing positions on MCX-SX.

“The Securities and Exchange Board of India has given MCX-SX a period of three months to boost its net worth to the minimum mandated 100 crore. Uncertainty on such critical issues reduces the confidence of market participants who then shift their activity elsewhere," an exchange official said on condition of anonymity.

In July, Sanjit Prasad, head of business development at MCX-SX, resigned and is currently on gardening leave. “It is true that I have resigned," said Prasad, without elaborating further.

People familiar with developments at MCX-SX say that the coming days could see more exits though this could not be independently verified. The exchange has invited applications for the post of managing director & chief executive officer of MCX-SX Clearing Corp. Ltd.

“The new management has charted a turnaround strategy which included distancing from certain entities which would restore confidence of market participants. We will now focus on restoring the net worth and roll out engagement programmes with market participants under the new identity of Metropolitan Stock Exchange of India Ltd. (mSXI)," the MCX-SX spokesperson said.

Anirudh Laskar contributed to this story.

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