Sucheta Dalal :Exchanging Blows
Sucheta Dalal

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Exchanging Blows  

December 30, 2009

A few weeks ago, SEBI (Securities and Exchange Board of India) chairman CB Bhave congratulated the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) for working together to create an exchange-based trading platform for mutual funds. He said, "Cooperation—and not competition—will bode well for better and faster market development." The irony is that competition has assumed nasty proportions under his watch. And the reason is the NSE’s clout with the regulator, the government and the media due to its near-monopoly status, high profitability and huge spending budgets.

There are plenty of examples of nasty competitive manoeuvres. One was the NSE’s controversial decision to up the ante and start trading an hour earlier in response to the BSE’s decision to start trading just 10 minutes early. This move was postponed to 4th January under a barrage of criticism from market participants.

The NSE’s unwillingness to clear any algorithm-based transactions that include the BSE in the parameters is another example. When the NSE launched its mutual fund trading platform, it initially kept out the BSE-promoted CDSL (Central Depository Services Limited). CDSL was included after the BSE ensured that NSDL (National Securities Depositary Ltd) was part of its fund trading platform from the very beginning.

NSE has been pummelling the MCX group at the mere threat of future competition, as and when MCX-SX is allowed to trade equities (currently it is only in the currency space). MCX was forced to take the NSE to the Bombay High Court over allegations about its broker front-end software, and to the Competition Commission with regard to predatory currency transaction charges. With the BSE making it clear that it is all set to rattle the NSE’s monopoly with yet another reduction in derivatives transaction charges, things will only get nastier.

Meanwhile, the controversy over the extended trading hours will spill over to the New Year. While the NSE is canvassing support for longer trading hours among large broking firms at least to extend timings for the derivatives segment, the BSE Brokers Forum has issued a press release reiterating its stand that over 72% of its members are against an extension.

Some members of Parliament have also been inquiring about the imbroglio. They have been told that the additional trading volumes generated by the extended trading hours will not justify the cost incurred by stakeholders to enable this. The big question then is: Who benefits from longer trading hours when neither investors nor brokers want an extension? In fact, even the BSE did not want to increase trading time beyond a token 10 minutes that was mainly aimed at creating a buzz about a new product. The only beneficiary here is the NSE and its sole motive seems to be to boost volumes to increase its own profit and, possibly, the already bloated salaries of senior management.

-- Sucheta Dalal