Brokers prefer cautious approach towards MCX-SX

Manisha Jha Sneha Padiyath Mumbai | Updated on February 11, 2013

Just 23 stocks witness trading activity

MCX-SX, the country’s third national-level stock exchange started its equity operations on Monday on a slow note, with just 23 stocks attracting trading interest. Even in those stocks, volumes were very poor. Reliance Industries with 6,164 shares changing hands was the biggest traded stock followed by Suzlon (1,402) and Tata Steel (1,364).

According to market-men, the exchange did not elicit a strong response from brokerages either big or small. Market participants are adopting a wait-and-watch approach, given the current business conditions of low volumes and income and higher expenses, they added.

Watching from wings?

Prominent brokerages such as Kotak Securities and ICICI Securities did not begin trading, despite registering as members of the exchange. Financial institutions on their part, are waiting for the new exchange to stabilise and monitor its working before stepping in.

“The bigger players who have registered with MCX-SX are treading on the side of caution. We have also taken membership but are waiting to see substantial volumes before commencing trading activity. We don’t want to start incurring compliance and audit costs,” said Suresh Parmar, Associate Vice-President (Institutional Equity), KJMC Capital Market Services.

He added that initially, in the absence of liquidity, volumes will be driven by the arbitrage opportunities (difference between prices of stocks in the different exchanges).

According to market players, several smaller brokerages have not even opted for a membership. Low trading volumes on existing exchanges – BSE and NSE – owing to dwindling retail investor interest is holding back smaller brokerages from considering MCX-SX membership, they said.

“We have not applied for the MCX-SX membership as we are struggling with low volumes at our retail counters on BSE and NSE itself. Many of our retail clients have run away from the market and our business is suffering so it makes no sense for us to take a new exchange membership,” said Ramesh Luharuka of Nariman Point Finance, a broking firm.

“Where is the retail participation? We had a retail clientele of 200 and are now left with hardly 50,” he added.

He echoed the Finance Minister’s statement at the inauguration of the exchange that most volumes on exchanges were non-delivery based.

However, some brokers pointed out that robust volume cannot be expected to be there on day one itself of MCX-SX, given the long history of the other exchanges and the investors comfort factor with them.

“If transaction costs are brought down through further incentives, it could spike investor interest in a significant way,” concluded Parmar.

The exchange was inaugurated by Finance Minister P Chidambaram on Saturday.



Published on February 11, 2013

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