The MCX Stock Exchange (MCX-SX), which is still some distance away from launching trade in equities, has already drawn up a strategy to lower costs significantly to take on established players.
While the exchange, promoted by the Financial Technologies group, is waiting for approval from the market regulator, the blueprint is aimed at doing what the National Stock Exchange (NSE) did to the capital markets 15 years ago.
At present, the exchange is confined to currency futures as the promoter group is trying to lower its stake to conform to the new shareholding norms. The deadline for stake dilution was extended by a year as the Financial Technologies group could not dilute its stake within the earlier deadline.
MCX-SX is planning to significantly lower the entry cost, the cost of transaction, and the cost of technology. Under the plan, there will be many more segments to trade. Mutual funds and initial public offers might also be distributed.
“Our exchange will aim at widening, deepening and democratising the stock exchange industry and will aim for financial inclusion to reach out to the masses,” the exchange’s Managing Director and Chief Executive Officer, Joseph Massey, said.
MCX-SX executives said the membership fees could be as low as one-tenth of what existing exchanges were charging. The Bombay Stock Exchange’s (BSE’s) membership costs around Rs 80 lakh in deposits while NSE’s is three times this. Transaction charges would be around half the prevailing level, they added.
Transaction charges on stock exchanges in India might be among the lowest but hefty profits reported by them indicated there was room for further reduction, the sources said.
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NSE’s standalone net profit for 2008-09 was Rs 515.5 crore while its income from transaction charges was Rs.573.4 crore. BSE’s net profit last year was Rs 212 crore and income from transaction charges was Rs 76.5 crore. However, both have reduced transaction charges recently.
Massey said there was scope for increasing the number of investors in the equity markets by 10 times and hence everything in the business should grow 10 times. Only affordable costs and enormous business opportunities could make this possible, he said.
“For brokers, our philosophy is that the exchange acts as the corporate office and brokers as branches. In fact, exchanges provide only the infrastructure while it is brokers who do distribution,” he added.
Besides, he said, stock exchange need not focus only on equities and derivatives. Internationally, 80 per cent volumes came from debt, currency and small and medium enterprises. Massey said, “Product innovation and product differentiation will be the key feature.” He has a plan to launch delivery-based settlement in derivatives, rate futures in short-tenure securities and bringing more volumes from below top 100 companies.
On Tuesday, 90 per cent of the volumes come from top 100 companies and at time when the country needs real capital formation, 85- 90 per cent of the volumes come from day trading and delta trading. The MCX-SX team is working for products and instruments that will make illiquid counters more liquid and ensure that markets help industry get easy access to capital.