A day after it secured the market regulator’s nod to start trading in equity and equity futures & options, interest rate futures and wholesale debt segments, MCX Stock Exchange (MCX-SX) said it plans to hit the ground running in a couple of months.
A day after it secured the market regulator’s nod to start trading in equity and equity futures & options, interest rate futures and wholesale debt segments, MCX Stock Exchange (MCX-SX) said it plans to hit the ground running in a couple of months.
“MCX-SX is in touch with many companies already due to various reasons, including its operations in other segments, and will soon begin the process of reaching out to them officially for exploring listing options,” Joseph Massey, MD & CEO, MCX-SX, said on Wednesday.
The exchange currently operates in only the currency derivatives segment.
It will start operations in the currency options segment within a month, Bloomberg reported.
In equities, experts feel, the exchange could take an alternative route under ‘permitted to trade category’ wherein companies can be traded even though they are not listed on it. They believe it will start trading in select liquid counters to start with.
On its part, the Street appeared excited at prospects of lower transaction costs, newer products on offer and improved liquidity as the entry of a new player heats up competition among exchanges.
B Gopkumar, executive vice-president & head - broking, Kotak Securities, believes increased competition will be good for investors. “This is a positive for competition in the exchange space. Investors will benefit as transaction costs could come down and we could see a couple of innovative products coming into play.”
Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, said the exchange is likely to play a major role in development of segments which have not gained significance yet. “Segments like interest rate futures and whole sale debt market, which have not got much attention, are likely to see more participation,” he said.
An academic study points out that far from fragmenting existing volumes, liquidity may actually improve with the entry of a new exchange.
A 2011 study by O’Hara, Maureen, and Mao Ye entitled “Is Fragmentation Harming Market Quality?” noted that transaction costs come down and execution speeds go up with new trading platforms entering the fray.
“We find that fragmentation affects all stocks; more fragmented stocks have lower transactions costs and faster execution speeds; and fragmentation is associated with higher short-term volatility but greater market efficiency,” said the study.
The exchange is likely to face stiff competition in the equity segment where the National Stock Exchange dominates the space with over 80% market share in cash segment and over 85% in equity derivatives.
BSE, which has been trying to revive its equity derivatives segment, has been able to gain some foothold only after running an incentive scheme and spending Rs60 crore over the last nine months.
So, for MCX to make a mark in this space, it would need to incentivise brokers to infuse liquidity.
A broker who preferred to remain anonymous said MCX-SX would do better to focus on technology rather than incentives to drive volumes.
“Following an incentive scheme may not be a viable proposition for a new entrant because of the large expense involved. Since algorithmic trading has come into the picture, it makes it easier for people to look for arbitrage opportunities and add to liquidity overall,” he said.
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