SX40@11,419, 3rd nationwide equity bourse goes live today

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All eyes will be on the country’s third nationwide stock exchange, MCX-SX, as it commences trading on Monday in a market dominated by the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) over the past two decades.

Its benchmark index, SX40, will begin from 11,419.70, a level that is nearly double the NSE’s Nifty index, which had a near-monopoly share of India’s index futures and options (F&O) trade in India over the past several years. The base value of SX-40 will be 10,000 with the base date being March 31, 2010.

On Monday, however, MCX-SX will not start trading in index F&Os, though single stock F&Os will be available. There are about 200 stocks where the F&O plan is permitted by the securities regulator. MCX-SX will allow F&O in all those stocks.

MCX-SX’s entry into equities and equity F&O received support from securities regulator Sebi when it, through a circular, allowed the monetary incentives under liquidity enhancement schemes (LES) in ‘permitted-to-trade’ stocks on Friday. All the stocks listed in MCX-SX are under ‘permitted-to-trade’ category.

This simply means companies are introduced into its platform directly by the exchange without requests by the companies.

Officials said the exchange will announce incentives of brokers to trade on its platform before trading commences on Monday. They did not disclose details of the incentives programme.

A total of 405 brokers are allowed to trade with MCX-SX, and will be able to buy or sell 1,116 stocks. The exchange has received 700 membership applications, including some from foreign brokers, MCX-SX officials said.

“Since we are a new exchange, companies have not come to us for listing (their shares) till now. We will initiate discussions with companies so that they come to us for listing and for offer for sale of shares,” said Jignesh Shah, vice-chairman of MCX-SX.

On F&Os, Joseph Massey, its MD & CEO, said the exchange will follow the same trading cycle as that of NSE, with the last Thursday of the month as its expiry date for the contracts. The F&O will also be cash-settled, just like in rival NSE.

The new exchange also announced the components of its benchmark SX40 index; these are ACC, Ambuja Cements, Asian Paints, Bajaj Auto, BPCL, Bharti Airtel, BHEL, Cairn India, Cipla, Coal India, Dr.Reddy’s Lab, Gail (India), HCL Technologies, HDFC Bank, Hero MotoCorp, Hindalco Industries, HUL, ICICI Bank, Infosys, ITC, Jaiprakash Associates, Jindal Steel & Power, L&T, Lupin, M&M, Maruti Suzuki, NTPC, ONGC, PowerGrid Corp, Reliance Industries, Sun Pharma, TCS, Tata Motors, Tata Power, Tata Steel, Titan Industries, United Spirits, Wipro and Zee Entertainment.

The stocks in SX40 have an industry cap at 20 per cent +/-2 per cent band. “SX40 includes companies that have a minimum free float of 10 per cent and is within the top 100 liquid companies,” according to a press release.

The exchange officials also revealed plans to activate the interest rate futures (IRFs) and the corporate bond market, which are yet to pick up on other exchanges.

Massey said there are some changes that need to be done in the product design and structure, which the exchange will take up with the regulatory authorities.

Shah pointed out that, globally, IRF and bond market was 10 times bigger than the equity market, indicating the potential in the “virgin market” in India, where equity and equity derivatives constitute nearly 100 per cent of the exchange transactions. “We are looking at strengthening and deepening the market in all segments,” he said.

Earlier, speaking after inaugurating the exchange, Finance Minister P Chidambaram asked the market regulators and intermediaries not to scare away investors through unnecessary “stifling” rules.

On innovation in financial products, Chidambaram had a word of caution, citing the example of the US mortgage market, which collapsed in 2008, following issuance of complex structured products. “Regulations should stay one step ahead of innovation. If financial markets employ two nerds, Sebi should employ three nerds,” he said, half jokingly, but the message was clear.

The new stock exchange was greeted with excitement by market participants.

S Ramesh, joint managing director of Kotak Investment Banking told Financial Chronicle that he hoped the new exchange would enlarge the market significantly, just like in other industries like airlines and telecom, where entry of private players expanded the market.

Vikas Khemani, president and co-head of wholesale capital markets at Edelweiss Financial Services, said a fresh new player in the stock market space might add new vigour into the industry. There is also immense potential for improvement in corporate bond and IRF market, he said.

G Anantharaman, former Sebi executive director, told Financial Chronicle that “healthy competition” was always welcome. He hoped that MCX-SX’s entry will not result in unhealthy market practices in the exchange industry in order to corner market share.


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