New exchange will bring in new investors into equities: Analysts

Ending a four-year legal tussle, SEBI, on Tuesday, granted MCX-SX permission to launch its equities trading platform.

MCX-SX will now be able to deal in Equity and Equity Futures & Options, Interest Rate Futures and wholesale debt segments. Competition is likely to intensify with the entry of a third player and will bring in efficiencies both for brokers and investors, felt marketmen.

“MCX-SX is already ahead of the curve in terms of distribution network and technology back-end,” said Mr K. Ramanathan, CIO — ING Investment Management.

“All that needs to be done is to grow volume and increase market share, but the initial differentiation among exchanges will be on pricing.”

MULTIPLE OPTIONS

“Investors will now have multiple options to invest across asset classes and that is what makes MCX-SX unique,” said Dr Nirakar Pradhan, CIO — Future Generali Life Insurance.

Marketmen said that the new exchange will bring in new investors into equities.

“MCX-SX being in the commodity exchange business for a long time now and this rub-off will see some more non-urban investors get into equity,” said Mr. Waqar Naqvi, CEO Taurus Mutual Fund.

“For them cost of setting up is only incremental, given that they are already in the business of exchanges and financial software.”

Intermediaries also felt that competition will benefit brokers and investors.

MORE PRODUCTS

“One can now expect more products, more innovation and more opportunity for arbitrage and more liquidity,” said Mr Nirmal Jain, Chairman IIFL.

“We are already a broker on the currency derivatives segment of MCX-SX,” said Mr Aiyub M Yacoobali , of South Gujarat Shares and Stock Brokers, Surat.

“Their ODIN software (open dealer integrated network) is very user friendly and we expect both brokers and clients to benefit from the launch of the equity segment on MCX–SX.”

Though MCX is dominant player in commodities, it might not be easy to translate it into equities, feel analysts.

LOWER FEE

“MCX-SX had a first-mover advantage on the commodities front but gaining control on equities is different,” said Mr Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities.

“There is a possibility that MCX-SX will charge lower membership fees to attract investors. Companies will benefit with a possible lower listing fee,” said Mr Arun Kejriwal, Founder, KRIS Research.

There has been concern that the BSE is losing market share to MCX-SX. They say that promoter-owned exchanges take decisions faster than institution owned ones. “It is likely that MCX-SX may tie up with BSE directly or indirectly to keep the exchange alive,” said Mr Kejriwal.

SEBI has given MCX-SX 18 months to bring the joint share holding of its promoters (MCX and FTIL) within the five per cent limit. “One way to dilute the share holding will be to transfer the warrants to either private equity players or to FII sub accounts. Another way to meet the condition — is to get listed. However, listing of MCX-SX will take time. The first route is more realistic. It will be challenging to meet the condition within this time frame,” said a legal advisor.

“It is a very good stock to buy and hold. So stake sale should not pose a problem to them,” said Dr Pradhan.

On Wednesday, MCX closed at Rs 1,128.75, down 2.45 per cent. Financial Technologies closed at Rs 776.35, up 3.05 per cent on the BSE.

priya.sheth@thehindu.co.in

raghavendrarao.k@thehindu.co.in

(This article was published on July 11, 2012)
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