22 July 2010

MCX versus SEBI

Both the Economic Times and Financial Express have strong editorials supporting grant of license to MCX - SX. ET, more stridently states:

"But that was to dispute one or several decisions by the regulator, not to challenge a non-decision as in the present case. The power granted to a statutory regulator is not meant to be wielded according to desultory whim, as had been the norm when licence-Raj mandarins ruled over the fates of companies and industries under their charge. Regulators are meant to enhance the welfare of stakeholders. In the case of securities trading, welfare is promoted by increasing the level of competition in the business.

MCX-SX promises to offer competition to the dominant player, the National Stock Exchange (NSE), of a kind that the Bombay Stock Exchange has failed to. By denying the exchange permission to trade, the regulator is depriving the economy of the potential benefits of competition among exchanges, such as a larger network of brokers and market-makers that the stunted debt market desperately needs. To add insult to injury, the exchange has been permitted to trade currency derivatives, in which segment it is the market leader but cannot earn any revenue as currency trading does not attract any charges on NSE, which cross-subsidises this segment with income from other segments.

If Sebi has a problem with the manner in which MCXSX promoters have reduced their stakes in the company to the ill-conceived minuscule levels set by Sebi, it should say so. If it does not, it should give it the go-ahead. Prolonged, ponderous silence on the subject goes against fair play, competition and the common good."

The ET piece also supports my views (in an ET column) that the maximum stakes in a stock exchange are 'ill-conceived'. I fully endorse ET's views - SEBI should pass an order either way. If it finds something is not good enough, it must pass an order rejecting the application of MCX rather than sit on it. Not taking a decision robs a person of basic rule of law rights to challenge a decision or order and can give rise to corruption. If there is no order, there can be no challenge to the order in a judicial forum. SEBI must come out with a decision either approving or rejecting the application for exchange registration. It's high time we have competition in the equity exchanges.

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