Sebi’s plan set to derail Metropolitan Stock Exchange’s comeback
Summary
MSEI was betting that an independent expiry day would help it gain some market share from NSE and BSE. But Sebi's plan could thwart its bid to position itself as an alternative to its more established and larger rivals.
A Mumbai-based stock exchange was planning a revival, but the market regulator’s proposal to limit index derivative expiries to two days a week has cast its future into doubt.
The Metropolitan Stock Exchange of India (MSEI) had raised ₹238 crore from broking firm Groww’s parent Billionbrains Garage Ventures, Zerodha's Rainmatter Investments, Share India Securities, and Securocorp Securities India in December 2024.
The bourse planned to offer a derivative contract for its flagship SX40 index. All National Stock Exchange Ltd’s derivatives expire on Thursday, BSE Ltd’s on Tuesday, and the MSEI had set Friday expiry for its SX40 contracts.
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The exchange offers trading but generates minuscule daily volumes at 30,950 on 5 May. By contrast, NSE's cash trading volumes on May 5 stood at 293.72 crore, while for BSE it was 58.59 crore. MSEI was betting that an independent derivative expiry day would help it gain some market share from NSE and BSE.
Sebi's plan could thwart MSEI’s bid to position itself as an alternative to its more established and larger rivals, experts said.
“It is highly unlikely that the market regulator will allow a separate day expiry for MSEI because then it circumvents Sebi’s original plan to reduce the number of weekly expiries," said a broker on the condition of anonymity. If the exchange does not get a separate expiry day, it will have no economic value, the broker said.
Established in 2008 by Jignesh Shah and associated entities, it was previously known as MCX-SX. Shah was allegedly involved in the National Spot Exchange Ltd fraud, which came to light in 2013--he denied wrongdoing.
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Sebi published a consultation paper on March 27, proposing that all equity derivatives contracts of an exchange should either expire on Tuesdays or Thursdays. This would provide “optimal spacing between expiries in a week and avoid concentration risk".
If all exchanges have expiries on the same day, traders might naturally go where there's the most liquidity, like NSE or BSE, said Nilesh Sharma, executive director and president (broking) at SAMCO Securities. Sharma said traders will always prefer better price discovery and liquidity, which is available on the NSE and BSE.
No derivative volumes
Latika Kundu, managing director and chief executive of MSEI, said that as a market infrastructure institution, it has been entrusted with the responsibility of building markets that support the country's economic growth. To reach India’s goal of becoming a developed nation, it needs multiple players to help build competitive capital markets, she said.
To create a healthy competitive environment, there has to be an enabler, an exclusive expiry assigned to MSEI in this case, Kundu said. “If that is taken away, we risk reverting to a duopoly or even monopoly, as the equity cash and equity derivatives markets are interdependent on each other."
Brokers and investors were betting on the revival of MSEI. Its unlisted shares traded for about ₹2 apiece for years. However, after Zerodha and Groww’s entry in December, the indicative share price touched ₹9 and went to ₹12 in January, before falling to trade at ₹6 currently, according to data from Unlisted Arena, which trades in unlisted and delisted shares.
Zerodha and Share India Securities declined to comment, while queries emailed to Groww and Securocorp Securities India remained unanswered. An email sent to Sebi also remained unanswered.
Apart from the SX40 index, the MSEI also offers the SX Bank index. The Nifty 50 futures on the NSE, expiring on May 29, recorded a volume of 76,211 contracts. The Sensex futures contract on the BSE, set to expire on May 26, saw a modest volume of 136 contracts. The MSEI's SX40 futures contracts show zero trading volume.
Multiple hurdles
Sebi’s expiry proposal is just one of the issues plaguing MSEI. Not many brokers offer the exchange’s contracts to their clients. It also lags its peers in infrastructure required to carry out these derivative trades seamlessly.
“The contracts on the MSEI exchange are live, but for trading volumes to build, brokers must obtain the necessary licences from the exchange and bring in customers," said Suvajit Ray, head of products of IIFL Capital Services Ltd. “Once licensed, brokers can offer these contracts, but actual volumes will depend on customer participation—placing trades, paying premiums, and engaging in settlements."
Ray added that if not immediately, then gradually, once the exchange’s infrastructure is in place, governance standards are met, and operational processes are streamlined, MSEI could function like any other exchange. “It may start with lower volumes and fewer participants, but as brokers come on board and traction builds, we can see volumes."
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Kundu of MSEI said the exchange has already started upgrading the technology of its network, infrastructure and systems to ensure seamless connectivity and a better trading experience for members.
