If all goes well, the Street as we know it will cease to exist in the next four sessions. Moving from the philosophy of Dwaita (duality) to becoming the believers of a Trinity is going to be a life-changing experience for the Street-dwellers.
Though no one is clear what is going to happen, the new entrant is unlikely to sit there and wait for things to happen. Expectations are that it will challenge the status quo and make all efforts to change it. In the process, it is also likely to lift the levels of competence and efficiency of the existing players.
MCX Stock Exchange (MCS-SX) is expected to go live next Monday. On a significant number of scrips, including all the large ones, traders are going to have three prices to play around with, instead of two. This may create a new set of arbitrage opportunities. For example, in the first year of its operations (1994-95), the National Stock Exchange (NSE) had 135 companies listed. However, it had another 543 companies under the ‘permitted’ to trade category.
Over the next three years, NSE brought in more scrips for trading through the permitted category wherein companies listed on other exchanges were allowed to use the NSE platform. This is a shorter process than listing. At one point, there were about 930 companies under the permitted category. By 1998, as NSE gained more acceptance among investors, it had coaxed many of these to list on itself and the number under the permitted category started falling. By 2005-06, NSE had over 1,069 listed firms and none under the permitted category.
This gradual process appears to be the most pragmatic option for MCX-SX, too. There will always be scope for some tactical innovations.
The amount of trading opportunities, though, will be capped by the depth of the new market itself. At 270 members already registered and some 200 more waiting in the wings, SX, as insiders like to call it, already has a head start.
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A Securities and Exchange Board of India (Sebi) document on the history of capital markets says in the 1830s when the trading of shares first began in the streets of Bombay, there were about six brokers. The Rise of Business Corporations of India 1851-1900 by Shyam Rungta talks about a reference to ‘Stock Exchange’ at II, Strand, Calcutta, in the Thacker’s Bengal Directory of 1864. It had fourteen members. The Sebi document talks about how the Bombay brokers had flourished during the heightened cotton demand in the American civil war years and had grown to 250 in number. A bust inevitably followed this boom, brokers disappeared, investors were stranded and a need for a saner and more organised market led to the formation of what is now known as Bombay Stock Exchange (BSE) in 1875.
Even NSE, people say, was the baby of the lessons learnt from the 1992 Harshad Mehta scam and the institutions’ frustrations with high-handedness of the then broker-run BSE.
I have no doubt Jignesh Shah, who started with BSE as a young engineer in 1990 and grew by his association as a vendor to NSE and then outgrew it, has learnt a lot from them and has the entrepreneurial spirit, which he had put in ample display over the past four years to take the fight to the Street. Shah once told me, “Don’t give your wife a bouquet once in a year. Give her one rose a day. That will make her more happy.” The market is a bit more fickle. She wants a rose every millisecond. Surprise her, Mr Shah.