Battle of the Bourses
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Image: Darrell Gulin / Corbis
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n the bloody era of bare-knuckle boxing, the first ever world heavyweight championship took place on Hampshire meadows in 1860, between two men totally unlike each other. American John Heenan, a well-read musician and gold prospector, fought Briton Tom Sayers, the illiterate son of a cobbler. The fight went down as the most brutal in history. They punched each other to near-death, and fought on despite Heenan losing his sight and Sayers dislocating a shoulder. After 140 minutes and 37 rounds, police intervened to stop the fight inconclusively. It had been so savage that it forced both the fighters into retirement.
In the much gentler present, however, such fights don’t take place in the meadows. They are often hosted at the boardrooms in the world of money. Equally ferocious and cunning, these fights nevertheless involve adversaries in their suits delivering heavy blows in practiced vocabulary. Not a drop of blood may be shed, but fortunes are made and lost, careers are built and demolished, heroes born and buried. In ruthlessness, they make the boxing ring look like the Garden of Eden.
This is the story of one such fight. The battlefield is India’s stock market, the stakes are the lucrative fees for putting through the millions of buy and sell orders for shares, bonds, currency and their derivative contracts. The adversaries, just like the prize fighters at Hampshire, are two diametrically opposite characters, common only in their killer’s instinct. And it is already developing into a bloody good fight.
On the one side is National Stock Exchange (NSE), which has replaced the Bombay Stock Exchange (BSE) as India’s premier bourse. It has an impeccable pedigree with the country’s best-known public and private institutions as well as marquee foreign financial giants as its shareholders. It has built up a virtual monopoly in stock derivatives and enjoys a net profit margin of more than 50 percent. Its benchmark index, the 50-share Nifty, is increasingly becoming a global asset. NSE is run by suave and classy executives.
On the other corner is MCX-SX, India’s newest stock exchange promoted by the Financial Technologies group of Jignesh Shah, a maverick businessman who quit a career as an engineer at BSE to become an entrepreneur just about the time NSE was starting 15 years ago. Shah is known for his lightning speed of execution. After all, he made a billion dollars in about a decade and built India’s largest commodities exchange in half that duration. To run the stock exchange, he has put together a team of aggressive strategists and technology experts who share his love for a good fight.
The two will come to blows in a matter of two, perhaps three, months when MCX-SX starts hosting the trading of equity shares and their derivatives. The clash will most certainly change the way you and I invest. In the marketplace, they will hit each other where it hurts most – transaction fees, trading and settlement norms, membership drives, variety in investment products, global outreach and ways to attract the non-investing public into the markets.
The duel shall come later, but the sparring has begun already. Both NSE and MCX-SX have unleashed an information war, leaving neither media nor regulators and courts unaddressed in their quest to discredit each other. Doubtless, their rivalry has a longer history, but it has reached a feverish pitch in the last few weeks as the D-day approaches. MCX-SX portrays NSE as a monopolist who doesn’t want competition, while NSE portrays Shah’s group as an unruly fighter that must be contained.
Ugly as it may be, the fight has already brought us benefits. It has thrown light over the way the stock market is run in the country. In a population of 1.2 billion people, less than 15 million have turned investors so far. Questions are being asked about taking investing to the next 100 million. India had a vibrant network of regional stock exchanges even a decade or so ago and the need for reviving activity in those corners is being felt now.
NSE is ever keener to dispel any notion of its being a slumbering giant and MCX-SX is going the extra mile to assert its credibility. It might all lead to a happy ending if the fight yields investors a more efficient and transparent market at sustainably lower costs of transaction.
The Next Frontier
The day the first equity deal is put through MCX-SX, it would have earned a rare distinction. There are exactly 99 major stock exchanges in the world and MCX-SX would be the 100th. Forty percent of the world’s stock exchanges are less than two decades old. They are changing the face of the industry with technology. Stock trading, a largely national affair till the 1990s, has become global thanks to electronic trading.
As one who made money in the burst of technology in the exchange business, Jignesh Shah quickly moved on to run exchanges himself. His flagship venture, Financial Technologies (FT), provides software for broker terminals and has a commanding market share. Eighty percent of NSE brokers use FT’s software. The Multi Commodity Exchange of India (MCX) promoted by him has become the world’s sixth largest commodities futures exchange, overtaking London Metal Exchange. His group has branched into other asset classes such as currency and power. The next frontier is the equity market.
The temptation is understandable. The stock exchange business is exploding the world over. Global trading volumes have reached an unprecedented $500 trillion, or nine times the world’s GDP. Each transaction fetches a risk-free fee to the exchange. Volumes are growing at 20 percent a year and core profits (earnings before interest, tax, depreciation and amortisation, or EBITDA) can be as high as 60-80 percent. The business offers steady cash flow in return for a one-time investment and the stickiness of customers (members) is high.
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With three bourses in the fray i sincerely hope the timings don't keep getting extended, as will probably be the case.
