Capital market norms biased against new players: MCX-SX

Capital market norms biased against new players: MCX-SX

New Delhi: Upset at Sebi’s move to reject its proposal to offer trading in equities, MCX-SX on Wednesday said the capital market regulations were giving monopoly to existing players and causing barriers for new entrants.

“In case of stock exchanges, the set of regulations by the regulator (Sebi) has given as de-facto monopoly to the existing stock exchanges," MCX-SX chairman Ashok Jha said here.

Without naming rival National Stock Exchange, Jha said, “The extent of monopoly can be gauged from the fact that although there are two countrywide exchanges, one of them has a market share of 94%."

Promoted by India’s largest commodity bourse MCX and another group company FTIL, MCX Stock Exchange Ltd (MCX-SX) currently offers trading in currency futures only.

Last month, the market watchdog Sebi had rejected the plea of MCX Stock Exchange for starting trading in equities as well as derivative trading in equity, interest rate and debt.

Sebi had said that allowing permission to this exchange would not be in the interest of the market and public interest.

In an order issued on 23 September, the market regulator had cited excessive concentration of economic interest in the stock exchange in the hands of the two promoters -- MCX and FTIL, which is not fully compliant with shareholding regulations as among the reasons for rejecting permission.

In a notice sent to the MCX-SX on 30 August, Sebi charged it with violation of Securities Contract Regulations Act (SCRA) 1956, as the buy back arrangements with certain investors amounted to forward contract between the parties.

The Manner of Increasing and Maintaining Public Shareholdings (MIMPS) in Recognised Stock Exchanges Regulations, 2006, specifies that no single entity can hold more than 5% of the equity in a stock exchange.

However, a stock exchange and a financial institution can hold up to 15% in another exchange.

The Sebi order last month noted that the two promoters of MCX-SX were persons acting in concert, and therefore they could together not hold more than 5% of shares in the exchange. The two currently hold 5% each in the exchange.

“The implementation of SCRA by the regulator, perhaps unintentionally, is designed to protect existing players by creating insurmountable entry barriers," Jha said.

Earlier this month, Sebi also deferred a decision on MCX-SX application for offering trading in currency options, while granting permission to the National Stock Exchange and BSE-promoted United Stock Exchange.

The move was described by the MCX-SX as “highly discriminatory".

Currency option is a derivative instrument that gives the owner the right, but not the obligation, to exchange money denominated in one currency into another at a pre-agreed exchange rate on a specified date.

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