04 December 2009

MCX exchange versus National Stock Exchange

The Eco Times today reported that “MCX-SX files complaint against NSE with CCI” for anti-competitive practices. (Note: MCX-SX is an exchange segment floated by the Financial Technologies group which has an active presence in the commodities futures market. MCX-SX has successfully started currency futures and is expected to start equity cash and derivatives trading in the future. NSE is the leading equity, equity derivatives and currency derivatives exchange. Competition Commission of India or CCI is the newly empowered anti-competitive/anti-trust regulator).

This is an interesting development from two perspectives. One, it is a precursor to NSE getting a muscular rival in the equity space. Two, it is a test of the competence and effectiveness of the CCI to come to a finding in this rather subtle case of anti-competitive behaviour.

The fact of NSE getting a real rival in the equity space is good news not only for MCX and consumers of the exchange industry like brokers and clients, but for NSE itself. After a decade of a very successful run, the competition will push NSE to better itself – and for sure the fat operating margins enjoyed by both NSE and BSE (Bombay Stock Exchange) will come under pressure. Which will naturally be good for people buying and selling securities and also for brokers.

As this will be a high profile case for CCI to handle, it will need to study the issues carefully and judge based on international precedents. I myself don’t yet have a view on whether it is anti-competitive or not, but my guess is, it is a difficult call to take.

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