MSEI, ICEX initiate merger talks; Sebi may give nod to move, say sources

Both deny any such immediate plan even as sources say Sebi is likely to give nod to the move

The Metropolitan Stock Exchange (MSEI) and Anil Ambani’s Reliance Capital-anchored Indian Commodity Exchange (ICEX) have initiated a merger talk, people in the knowledge of the development said. The two exchanges, however, denied any immediate plan of merger

The MSEI, once a market leader in currency derivatives, is now reduced to being a small player with a significant fall in currency derivatives volume – the daily average in July 2018 was Rs 381 crore, but it fell to Rs 154 crore in April 2019. The exchange holds license for the equities segment but trades are insignificant.

In business terms, Clearing Corporation set up by the MSEI also does clearing for the ICEX.

The Clearing Corporation was set up with a net worth of Rs 300 crore but later the Securities and Exchange Board of India (Sebi) revised the relevant regulations and prescribed only Rs 100 crore net worth.

With this, the MSEI is left with a comfortable level of net worth.

After the term of the previous MD ended in January, the exchange is working without a full-time MD & CEO. The Clearing Corporation’s CEO Balu Nair has been given the additional charge of the stock exchange. The exchange’s Board, a couple of months ago, had submitted a few names for the post of MD to the regulator, it is yet to clear a name.

With Sebi pursuing a policy of fewer but bigger players in the exchange industry, if merger talks reach a concrete stage, sources said, that it should get the regulator’s approval.

On the other side, the ICEX had acquired an Ahmedabad-based commodity exchange, NMCE, in an all-share deal. It is now re-launching many of that exchange’s contracts. It has diamond, steel and rubber futures contracts, besides it launched isabgol recently. Next Monday, it is planning to come up with black pepper futures. The ICEX’s net worth after the merger is Rs 180 crore but it incurs a monthly loss of Rs 2 crore.

The ICEX’s MD Sanjit Prasad is credited with developing the MSEI’s currency segment and he played an important role when the MSEI was with the MCX and known as the MCX-SX, making it a market leader ahead of the NSE. Although that was 8 years ago.

An ICEX spokesperson said: "Our net worth is well above the mandated criterion and after the merger with the erstwhile NMCE, the net worth has increased substantially to sustain its business on its own. The exchange has witnessed 10x growth in volumes of diamond contracts compared to last year. In the last few months, the ICEX has launched new products like steel, isabgol and rubber and we have already announced plans to launch black pepper this month and paddy futures in a couple of months. Hence, there is no plan for a merger with any other exchange as of now."

However, a source close to the exchange said that the exchange is not averse to inorganic growth, though its hands as of now are full. Which means it is not planning to merge with any exchange but open to merge other exchange with itself, explained the source.

On the other hand, the MSEI spokesperson said: “We would like to categorically deny any such development or inclination towards the same.  As an exchange, we are well capitalised. We also own a financially strong clearing corporation. With the regulator introducing market reforms like interoperability, as a Market Infrastructure Institute, we stand strong on business prospects as it will give us an equal opportunity in the market place. We are totally focused on getting the business back on our exchange and hence thought of any merger doesn’t arise.”

Sources close to development, however, said that regulator wishes some consolidation and merger talks between both the exchanges are on.