MCX-SX - TO CRACKLE AND FIRE THIS DIWALI

By Ruma Dubey

Earlier when we said, “stock exchange” it meant only one thing – the Bombay Stock Exchange (BSE) but then arrived the new kid – National Stock Exchange (NSE) and soon, Over the Counter Exchange or OTC. Well, OTC fizzled out like a shooting star but NSE has shaken the very foundation of BSE. And now when both have managed to find their own comfort zones and ‘live and let live’, there is a spunky new exchange – MCX-SX.  With such an abbreviated name, with two “Xs” in its name, it looks like a part of the Blackberry and SMS generation. The big question is – how will things pan out with this third exchange?

MCX-SX is set for a Diwali launch and it has started rolling out its extremely aggressive membership drive, showing at the onset itself that competition will heat up for BSE and NSE. It has announced an ‘introductory’ membership fee, valid only till 18th Oct, of Rs.25 lakh, which includes admission fees and deposit. Starting 19th Oct, the membership fee will be Rs.50 lakh.

This is like braying out the war cry. This fee is almost similar to that of BSE but much lower than NSE which charges Rs.1.5 crore for corporate membership and Rs.75 lakh for others. MCX has also lowered the networth requirement – Rs.30 lakh, same as BSE’s equity segment networth requirement though it charges a lower Rs.25 lakh for F&O. On the other hand, NSE’s requirement is Rs.1 crore for corporate and Rs.75 lakh for others.

It transaction fees are also much more favourable than the current 2 stock exchanges. Take for example the following table which compares fees of MCX vis-à-vis NSE, for the cash market:

Even for the derivatives segment, fees of MCX are almost half the rate charged by NSE. For futures segment, MCX plans charges of Rs. 1.2 per lakh upto Rs. 2,000 crore, Rs. 1.1 per lakh for turnover between Rs. 2,000 – 10,000 crore and Rs. 1 per lakh for turnover above Rs. 10,000 crore. For options segment, its proposed charge of Rs. 25 per lakh is half of what NSE currently charges.

So is the MCX putting itself, to begin with, at par with BSE but with the aim of taking on NSE?

A new exchange would mean new ways and MCX has started that by categorizing its members into three - composite, professionally qualified and rural entrepreneur.  And the price war has been extended across these categories – giving a 10% fee discount to professionals such as MBA/CA/CFA/ICWA/ LLB/ICSI/BE and MBBS and a 20% to rural area members.

There is now news that post this move by MCX, NSE will announce a rate cut. So competition is good for the people as not only will the price become more competitive but it also makes services much more efficient. Interestingly, before NSE came on the scene, a BSE card cost had shot up to Rs.1.5 to 3 crore.

Currently, the NSE has over 1,400 members and the BSE has only 20 less - 1,380. MCX, which is functioning presently as a currency exchange has 750 members and there is a possibility that many currency brokers, familiar with the MCX functioning might get lured into stock trading.  MCX, apart from equity and F&O, is also likely to offer interest rate futures and wholesale debt segments.

Come this Diwali and Muhurat trading could become a whole new experience and healthy competition is always good – for the people and the economy. Would be an interesting race to see which exchange emerges on the top and more importantly, how all this changes things for BSE.