MCX-SX, the new entrant to go live with equity and debt market trading from Diwali, has started a price war among domestic bourses. A broker will have to shell out nearly 80 per cent less, Rs 25 lakh compared to National Stock Exchange's Rs 1.5 crore, during the offer period to become a trading member of MCX-SX.
The Financial Technologies-promoted bourse has announced a lower deposit structure and net worth requirement for its members than NSE and also doled out discount schemes for those from the rural areas and professionals such as accountants and MBAs.
Higher membership requirement was a major entry barrier to becoming a stock broker. The Bombay Stock Exchange (BSE) had made an attempt to bring down cost by cutting deposits 90 per cent in 2010. However, MCX-SX has priced itself higher than the BSE and positioned itself as a premium bourse. Stock brokers feel pricing need not matter if MCX-SX was able to give them a good amount of liquidity in the wholesale debt market and interest rate futures segment along with equity.
| MCX-SX: PLAYING THE PRICE WAR |
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NSE is a leader in the equity cash and derivative segment with an 80 per cent market share. Hence, it had easily got the premium till now. Trading in wholesale debt market and interest rate futures has not picked up on NSE and BSE, though the former exchange has 1,500 brokers members and the latter 1,000.
While a broker has to shell out Rs 1.5 crore to become a trading member on NSE in the equity cash and derivative segment, the outgo for them on MCX-SX will be Rs 30 lakh if they enrolled before October 18. After October, the outgo from a broker’s pocket will be Rs 50 lakh. Saving on higher deposit would be a benefit for brokers in the current scenario where business is poor due to lacklustre trading volumes and slowdown in economy, say experts.
| INTENSIFYING COMPETITION Comparative cost structure for trading members for equity cash and derivative segments on MCX-SX, NSE & BSE | |||
| Cost head | MCX-SX | NSE | BSE |
| Admission fees | Rs 5 lakh | Rs 5 lakh | Rs 5,000 (For both equity F&O and equity) Rs 2.5 lakh (for equity) |
| Deposits | Rs 20 lakh (post introductory period the deposit will be Rs 40 lakh) | Rs 1.50 crore (for companies) Rs 75 lakh (for individuals/ partnership firms) | Rs 30 lakh |
| Networth | Rs 30 lakh | Rs 1 crore (for companies) Rs 75 lakh (for individuals/ partnership firms) | Rs 30 lakh (equity) Rs 25 lakh (F&O) |
| The annual membership fee on MCX SX and NSE is Rs 50,000 and on BSE it is Rs 25,000. (For corporates on NSE it is Rs 1,00,000) | |||
Sources in the exchange industry say NSE will soon respond to MCX-SX by reducing their deposit by 50-60 per cent. NSE was contemplating such a move in 2010 but put it on the back burner. The proposal then was to cut on deposits in the cash segment to Rs 50 lakh and cash plus derivatives to Rs 75 lakh, which will now be revised said a source. MCX-SX's strategy may not hurt the BSE.
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It was NSE which started the system of deposit-based membership at a time when BSE was an elite club.
Till five years ago, entry to BSE was restricted to those who could afford the expensive membership card, the cost of which fluctuated between Rs 1.5 crore and Rs 4 crore. Further, there is a scope for NSE to cut transaction charges. The BSE has witnessed high trading interest in the options contract of the Sensex, its benchmark index, pitched against NSE’s popular Nifty index. This is due to a 99 per cent lower transaction cost in BSE’s options segment, coupled with incentives. Here too, the MCX SX is likely to keep transactions costs on its platform lower than NSE and higher than BSE.
While the NSE charges Rs 5,000 for every Rs 1 crore of options turnover, BSE takes a measly Rs 50 for the same. The NSE had lowered the trading cost in the futures & options and the cash segments by 10 per cent in September 2009. This had resulted in a major spurt in options trading volumes, from 10 per cent of all derivative trades to 45 per cent on NSE. In response, BSE had lowered the membership fees.