Three bourses = cheaper trading

If tracking two major stock indices was any trouble, what would you say of the third?
The entry of SX-40 – the benchmark index of MCX-SX, India's third national level stock exchange, which goes live today – broadens the choice for market participants.

What’s more, the ensuing competition is likely to bring down transaction costs for brokers and investors, and thereby help drive up volumes, say experts.

To be sure, the new entrant has kept its transaction charges for members 30-50% cheaper than rival NSE. Also, its initial membership fees were way lower than that of NSE's, which helped it get around 700 membership applications.

“Though the investors won’t feel the impact immediately, the lower transaction costs for members would be ultimately passed on to customers which in turn will fuel more liquidity,” said Arun Kejriwal, director, Kejriwal Research and Investment Services.

If anything, while the explicit costs may appear low, investors need to also consider the implicit costs – the impact cost – which would improve only once liquidity picks up, feel experts.

Interestingly, while India is likely to take some time to overtake Japan and UK in terms of GDP, it now has the same number of national stock exchanges as they do.

MCX-SX would initially offer equity trading in 1,116 stocks under ‘permitted for trade’ category, which the exchange believes represent fairly liquid counters. Trading in these scrips would be provided by nearly 405 broking members – of the 700 applications the exchange has received – that have already received Sebi registration.

The exchange would be starting initially with cash-based settlement on derivatives and may bring delivery-based settlement going forward.

“We don't want to be just another exchange but would like to be known as metaphor for change – doing different things differently and bringing about disruptive innovation,” said Ashok Jha, chairman of the advisory board of MCX-SX.

The new exchange, which is located further north in Mumbai compared with the older two – it is in Andheri, whereas BSE is in Fort and NSE in Bandra-Kurla Complex – is also likely to provide impetus to equity trading outside Mumbai,  in Tier II and Tier III cities.

“The Sensex or stock market is just a 2 square mile phenomenon in India (Fort to Nariman Point, where most brokerages were located),” veteran investor Shankar Sharma had said in one of his interviews to DNA earlier.

For the record, Mumbai still contributes to 36% and 60% of the overall cash turnover on BSE and NSE, respectively.

Jignesh Shah, vice chairman of MCX-SX, said they are not targeting any market share as of now and want to concentrate initially on having a solid and firm foundation, adopting best practices and systems.

" We are not in a 100 metre race; it’s a marathon. Don't expect wonders on Day One of trading. We will build volumes step by step,” he said at the exchange's inauguration. “Also, we would provide services at optimal cost -- not at dotcom price, nor overly priced.”