Sucheta Dalal :Will United Stock Exchange gain currency?
Sucheta Dalal

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Will United Stock Exchange gain currency?  

April 21, 2010

Newly established stock exchange, the United Stock Exchange (USE) has received final regulatory approval to commence operations in currency futures. Following this nod from the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), a 15% major shareholder in the USE, has officially suspended its operations in the currency derivatives segment.

While USE has set its sights on the skies, it would do well to be a little circumspect. After all, BSE’s past attempts at floating various derivatives products have turned sour. It has lost out to its rivals, the MCX Stock Exchange (MCX-SX) and the National Stock Exchange (NSE). NSE in particular wants to extend its monopoly over the equity segment to currency as well. It has already made a predatory move, typical of its aggressive mindset, by making membership to its currency derivatives segment free. MCX-SX has appealed to the Competition Commission about this anti-competitive practice. The commission has ordered an investigation. It is quite a messy skirmish USE is entering into.

BSE launched the first exchange-traded Index Derivative Contract on 9 June 2000. Ever since, it has struggled to attract participants, affecting the liquidity on its derivatives platform.

Last year, in an attempt to capture volumes from NSE’s vastly superior derivatives segment, BSE slashed transaction costs for its equity futures and options (F&O) segment. It hoped that the revised fee structures would substantially lower transaction costs for all market participants and improve depth and liquidity in its equity derivatives segment.

In such a scenario, USE will have to usher in some significant changes and innovations in order to attract bigger volumes and liquidity for its currency derivatives product. However, the USE remains quite optimistic about rolling out its currency derivatives offering to the market. It has been on a vigorous membership drive, with over 150 members said to have already submitted their applications. It is expected that most of the members of BSE will join USE in its new venture. The exchange also claims to have garnered keen interest from new members from the banking and broking fraternity.

According to T S Narayanasami, MD & CEO of USE, “USE’s membership drive is in full swing and we are very pleased to see spontaneous response from the banks which are natural partners of USE apart from (the) broking community. Trading membership is initially free with nil transaction charges to begin with. It is envisaged that since almost the entire banking system is a stakeholder, USE will gain significantly by the volumes traded by them on the exchange. USE has tentatively planned to commence operations in June 2010.”

Madhu Kannan, MD and CEO of the BSE added, “The currency derivatives market in India has enormous potential for continued growth in the next few years. We expect USE to compete well in this growing market on the basis of product innovation, the training & development of new participants, and strong leadership.”

The USE has attracted equity investments by both PSUs and the private sector. USE represents the commitment of all 21 Indian public sector banks, some reputed private banks and corporate houses. — Moneylife Digital Team

-- Sucheta Dalal