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The equity segment turnover of MCX Stock Exchange (MCX-SX) in April has fallen by 99 per cent from its all-time highs. The fall comes as the exchange moved to remove an incentive structure aimed at bringing volumes to its trading platform.
The average daily volumes in April dropped to Rs 10 crore, compared to Rs 81 crore in March. It was a high of Rs 1,466 crore in July 2013.
“The retail investor is not very active…there is also a lack of confidence on account of its recent issues. Financially, it makes sense to discontinue the incentive schemes,” said Siddharth Bhamre, head of derivative analysis at Angel Broking.
The exchange has been under a cloud after a payment crises at a spot exchange in which its former promoter had majority stake. Financial Technologies and Multi Commodity Exchange together have stake equivalent (with warrants) of a little over 70 per cent in the bourse. FTIL had majority stake in the National Spot Exchange, embroiled in a Rs 5,600 crore payment crisis.
MCX-SX had discontinued all Liquidity Enhancement Schemes (LES), by which traders were paid a certain amount to trade on the exchange platform, in its capital markets and futures & options segments effective April 10.
“Equity is definitely a part of our long-term strategy. However, in the near term, our focus is more on the currency, corporate bond and interest rate futures. With the recent relaxation on the margins, the currency derivatives segment looks more promising. Meanwhile, we are in discussion with all our members on the right approach for the equity segment,” said a spokesperson in an emailed response to a query.
The decision to stop incentive schemes, which resulted in an outflow of Rs 4-5 crore every month, is part of a larger drive to reduce costs, added the spokesperson. “The objective of LES was to get sticky liquidity into the system, which would have become sustainable over a period of time. We felt a need to review the mechanism in view of the actual results. Hence, we took a call to temporarily suspend LES,” said the person.
Adding: “We will review the LES mechanism and re-introduce it at a more opportune time, when genuine retail and institutional participation is back in the equity segments. Meanwhile, we plan to introduce member and client engagement programmes, to provide us with ideas about the ideal LES scheme.”
“Volumes would likely pick up again once there is a return of the incentive scheme. Traders who were there for the incentives would come back,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.
The exchange has less than one per cent share of equity market volumes. However, it has a higher share in other segments.
The exchange’s market share in Interest Rate Futures in March was 8.9 per cent, second among the three bourses. It dropped to 3.87 per cent in April, third place so far this month.
It had an 18.5 per cent share of volumes on the currency segment in March, compared to 41.59 per cent for the National Stock Exchange and 24.3 per cent for the BSE. The United Stock Exchange had 15.57 per cent.
