Can MCX-SX challenge NSE's dominance?
Trading on MCX-SX has got off to a quiet start and it could take a year for the new stock exchange to make any impact.
Finance Minister P. Chidambaram (third from left) and Vice Chairman of MCX-SX Jignesh Shah (right) at the launch in Mumbai
After 15 years, a new stock exchange, MCX-SX, was born in India on February 9, 2013. It was a lacklustre launch - in the first few days volumes remained low with no participation from foreign institutional investors (FIIs). In the first seven trading sessions, the cash market turnover added up to just Rs 2.33 crore. Derivatives turnover, too, was low at around Rs 86 crore.
It is too early to come to any conclusion on the outlook for the MCX-SX. It will take a while, at least eight to 12 months, before the exchange can leave any impression on the street. Indeed, ensuring greater broker participation, both domestic and foreign, is a big challenge for the exchange. Today, there is only one FII in the list of 405 members registered with the exchange. A few other FII brokerages have signed up to become members after the exchange offered incentive schemes. Even if these FIIs come on board, it will take at least two to three months before they get approvals from the Securities and Exchange Board of India to trade on the exchange.
Many are waiting to see what the MCX-SX can offer that is different from the National Stock Exchange (NSE). In the cash segment, the NSE, on an average, has a market share of close to 80 per cent while in derivatives its share is over 90 per cent. Technology could be one of the important differentiators for Jignesh Shah, promoter and Vice Chairman of the MCX-SX. His company, Financial Technologies, which is also one of the promoters of the MCX-SX, offers the trading software ODIN, and controls nearly 65 to 70 per cent of the software trading platform market. With Financial Technologies being a listed entity, it won't be easy for Shah to offer freebies to brokers to draw them towards the new exchange.
The other differentiator could be its product offerings to its customers. Already its flagship index, the SX-40, is an example of thinking out of the box. The index has 40 stocks, compared with 30 stocks of the BSE Sensex and 50 stocks of NSE's Nifty. Apart from the number of stocks, the SX-40 gives lower weightage to the financial sector. Thus, in a high interest regime, the SX-40 is likely to perform better than the other two indices. Also the SX-40 has some mid-cap stocks in its basket like Titan, United Spirits and Zee Telefilms, which are missing from the other two indices.
Shah plans to go all out to garner liquidity and generate interest in the MCX-SX. According to sources, two days before the launch of the exchange, his brother Manjay Shah had a series of meetings with jobbers (market makers who buy and sell shares, generating liquidity in the market). It has to be seen what strategy Shah finally adopts to make his presence felt in the market. One thing is clear though: he will not give up without a fight.
It is too early to come to any conclusion on the outlook for the MCX-SX. It will take a while, at least eight to 12 months, before the exchange can leave any impression on the street. Indeed, ensuring greater broker participation, both domestic and foreign, is a big challenge for the exchange. Today, there is only one FII in the list of 405 members registered with the exchange. A few other FII brokerages have signed up to become members after the exchange offered incentive schemes. Even if these FIIs come on board, it will take at least two to three months before they get approvals from the Securities and Exchange Board of India to trade on the exchange.
Many are waiting to see what the MCX-SX can offer that is different from the National Stock Exchange (NSE). In the cash segment, the NSE, on an average, has a market share of close to 80 per cent while in derivatives its share is over 90 per cent. Technology could be one of the important differentiators for Jignesh Shah, promoter and Vice Chairman of the MCX-SX. His company, Financial Technologies, which is also one of the promoters of the MCX-SX, offers the trading software ODIN, and controls nearly 65 to 70 per cent of the software trading platform market. With Financial Technologies being a listed entity, it won't be easy for Shah to offer freebies to brokers to draw them towards the new exchange.
The other differentiator could be its product offerings to its customers. Already its flagship index, the SX-40, is an example of thinking out of the box. The index has 40 stocks, compared with 30 stocks of the BSE Sensex and 50 stocks of NSE's Nifty. Apart from the number of stocks, the SX-40 gives lower weightage to the financial sector. Thus, in a high interest regime, the SX-40 is likely to perform better than the other two indices. Also the SX-40 has some mid-cap stocks in its basket like Titan, United Spirits and Zee Telefilms, which are missing from the other two indices.
Shah plans to go all out to garner liquidity and generate interest in the MCX-SX. According to sources, two days before the launch of the exchange, his brother Manjay Shah had a series of meetings with jobbers (market makers who buy and sell shares, generating liquidity in the market). It has to be seen what strategy Shah finally adopts to make his presence felt in the market. One thing is clear though: he will not give up without a fight.
