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India: Exchange big hitters in battle for market share

India’s stock exchange heavyweights – the National Stock Exchange and the Bombay Stock Exchange – are gearing up for a fight for market share.

Spurred on by the threat of competition from new entrants and the prospect that India’s economy will continue to see growth of at least 7 per cent over the next few years, the NSE and BSE have announced a series of new products, hires and alliances.

India’s benchmark Sensex index has risen more than 70 per cent so far this year, making it one of the 10 best performing markets around the world. GDP, meanwhile, grew 6.1 per cent in the three months to the end of June, indicating the economy may have bottomed out.

The timing of the rebound, in the economy and stock market, could not be better for Madhu Kannan, chief executive of the BSE, the oldest of India’s more than 20 or so exchanges.

The appointment of Mr Kannan, who was only 36 when he took over in May, marked something of a change of strategy for an exchange that has been struggling to regain market share since its cross-town rival the NSE burst on to the scene nearly 15 years ago.

Before its arrival, the BSE had 80 per cent of the market. In 12 months the NSE hit the same level and the BSE has been trying to claw back market share ever since.

Mr Kannan hopes to upgrade the exchange’s technology, improve client relationships and make better use of its existing relationships with the Singapore stock exchange and Deutsche Börse.

In August, the BSE announced it had taken a 15 per cent stake in the newly formed United Stock Exchange to help drive the development and growth of both interest rate and currency derivatives markets. It will also start trading interest rate futures in the next couple of months.

But the NSE has pipped it to the post, becoming the first exchange, at the end of August, to resume trading in interest rate futures. A previous attempt to introduce the contract flopped in 2003 due to pricing issues and the regulator’s failure to allow banks to trade the product. The new contracts can now be traded by banks and are open to some foreign participation.

Ravi Narain, chief executive of the NSE, is upbeat about the exchange’s ability to grow and innovate and says he welcomes competition. He also wants the exchange to offer a full range of asset classes.

Since 2000, the NSE has, among other things, rolled out internet trading, exchange traded funds, a volatility index and currency futures. It is also looking at creating a platform for small and medium-sized enterprises, and appears to be responding to increased competition where it hurts. It said this month it would lower trading costs in futures and options and cash segments by 10 per cent.

Adding to the pressure on the NSE and BSE is the arrival of a significant new entrant to the market. The Multi Commodity Exchange of India, controlled by Indian markets entrepreneur Jignesh Shah’s Financial Technologies group, is poised to start its own stock exchange.

MCX-SX will form part of a portfolio offering trade in interest rate futures, ETFs and fixed income. The exchange already offers trading in currency futures.

Joseph Massey, chief executive of MCX-SX, believes there is room for another stock exchange at a time when the government is moving towards financial deregulation and is pushing to give India’s rural population the same access to financial services as their urban counterparts.

Currently 1.4 per cent of India’s population participates in the capital markets compared with 40 to 45 per cent in developed countries. In addition more than 90 per cent of exchange trade is confined to only 10 cities in India, according to the MCX.

Mr Massey says the scope for growth in the types of products on offer is also large, adding that while SME’s, currency, bonds and derivatives make up to 80 per cent of trade in other markets, many of these asset classes are still only in their infancy in India.

“Until recently the asset class in the public domain was equities. Other products were non-existent. Now we have the opportunity to provide different shades of investment products,” says Mr Massey.

Analysts say the combination of greater competition between the exchanges and strong fundamentals is great news for investors.

“The last 10 years have been remarkable. We’ve gone from being one of the least efficient markets to one of the most efficient. There are now 7,000 stocks listed,” says Sukumar Rajah, managing director and chief investment officer for Asian equities at Franklin Templeton Investments in India.

Mr Rajah says at the moment less than 5 per cent of personal savings in India are invested in the market. But with Indian GDP expected to grow at between 7 to 9 per cent on average over the next five to 10 years, he says the outlook for India is good.

“With this type of growth there is room for companies to expand . . . so for both local and global investors, this market will continue to be interesting.”

Source: FT, 20.09.2009 by Mary Watkins

Filed under: Asia, Exchanges, India, News, , , , , , , , , , ,

Celent: More positive reviews for India shares

Celent is the latest to sing the praises of India’s stock market.

The Indian equity markets are showing signs of recovery, according to Celent, a Boston-based financial research and consulting firm. Although India’s equity market capitalisation is still some way off the 2007 high of $3.3 trillion, it is expected to exceed 2008 levels in 2009 at $1.9 trillion, the firm says in its latest report on India shares.

Celent is the latest to sing praises for India’s stock market. Earlier this month, Credit Suisse unveiled a new target of 17,000 for India’s Bombay Stock Exchange benchmark index (Sensex). In June, BNP Paribas recommended its clients to reduce their exposure to China, which it has lowered to neutral from overweight, and increase their allocations to India, where the bank remains overweight. BNP Paribas’ own target for the Sensex is 16,500. The Sensex closed at 15,160.24 on Friday.

The key findings of the Celent report include:

India is one of the main emerging equity markets. The country’s leading stock exchange, National Stock Exchange (NSE) is ranked third in terms of the number of equity trades of individual exchanges. The Bombay Stock Exchange (BSE) is also one of the leading exchanges worldwide, and the Indian market continues to hold further promise, as the economy is expected to grow 5-6% even in the current economic downturn.

The NSE is expected to overtake the Bombay Stock Exchange (BSE) in market capitalisation in 2009. Already far ahead in turnover, the NSE is expected to further its lead. It has already cornered the exchange-based debt markets and the equity derivatives business and become the exchange of choice in India.

The NSE is preferred by foreign institutional investors (FIIs), while retail investors, domestic brokers, and sub-brokers prefer the BSE. NSE turnover is two times that of the BSE because FIIs hold on to shares for a shorter period of time than their local counterparts.

India’s debt market is underdeveloped. In spite of growth, the Indian corporate debt market is far behind developed and emerging economies worldwide. At an expected turnover value of $70 billion in 2009, it is equal to less than 10% of the government debt market.

In the equity derivatives market, volatility has meant that the investors prefer to trade more in index derivatives because they are far more liquid than stock futures and options. Index futures and options now comprise 64% of the trading done in futures and options. Just like equities, the equity derivatives market has also recovered, and the turnover in the fiscal year 2010 is expected to be around $3 trillion, close to the figure in FY 2008. The growth in turnover and volume has made NSE one of the top 10 derivatives exchanges in the world. Having one of the highest growth rates in 2008 (56%), it is expected to do even better in the future. Interestingly, in spite of being more complex a product than cash equity, the equity derivatives market is quite popular with retail investors, and they had more than 50% of the market share consistently throughout the period of June 2008 to May 2009. This bodes well for the breadth of participation in the market.

The equity derivatives market is dominated by the NSE, due to the superior use of technology and better strategy. Also, the NSE has a high growth rate, and it is expected to break into the global top five by volume in the near future. In 2008, it had a trade volume of 590 million contracts and grew by 55.4% over the previous year. This made it the eighth largest derivatives exchange in the world.

Stock futures and options are not very liquid. The stock futures developed as the number of stocks traded has gone up from around 30 to 40 stocks to between 150 and 200. However, stock options are illiquid, except in the case of leading companies, meaning that a lot of transaction volume is driven by a few signatures. This situation could be worrisome in the long run, and there is certainly room for improvement.

Index futures and options dominate the NSE’s equity derivatives portfolio. Reasons for this include: recent volatility in the global markets, the participation of retail investors (comprising 53% of the turnover in the NSE in May 2009) in the derivatives market, and the fact that it is easier for investors to use index futures and options.

Currency futures have started promisingly. In the period between October 2008 and June 2009, the total volume traded on the NSE and MCX-SX was 132 million contracts, which compares favourably with 577 million exchange-traded currency futures globally in 2008. The combined monthly volume was above 29 million contracts for the two Indian exchanges.

Interest rate futures are expected to be reintroduced before the end of 2009. The Indian capital markets have been undergoing incremental reform, and once currency futures have established themselves, the Reserve Bank of India, the central bank, the Securities and Exchange Board of India (Sebi), and the capital market regulator plan to establish new regulations and reintroduce interest rate futures.

For the interest rate futures market to succeed, banks should be allowed to trade. Futures failed miserably in 2003 because the banks were only allowed to hedge. As the main participants in these markets, banks should be allowed to trade and build up the demand-side of the market.

Volatility is high, and a product such as NSE’s volatility index would be useful. NSE has come out with a volatility index, which is a market-wide index. At present, it is not available for trading. However, it is important that NSE soon introduce trading in an index because this will be very useful for market modelling and will help investors cope with the uncertain capital markets better.

Foreign institutional investment has begun to reverse its decline in recent months. FII drives the Indian equity markets. There is a high correlation of0.38 between the between the performance of the Sensex and FII over the period of January 2004 and May 2009, and it had been affected by the recent crisis. However, April and May 2009 have been the first months with positive net monthly investment in equity in more than a year. There are signs that these investors are rediscovering their faith in Indian equity markets. The share of Asian FIIs has risen, comprising 25% of all the registered FIIs in India, closely following the US, which has 29%.

The role of domestic institutional investors (DIIs) and the retail investors is becoming more prominent in the Indian markets.

Retail investment will grow as technology improves and reach increases. While it may be some time before the retail investors become the main driver of the markets, they are becoming stronger, and the advent of exchanges such as the NSE and recently, MCX-SX will improve the possibility of domestic savings being invested in capital markets.

Indian capital markets are advanced technologically but need to continuously improve to be competitive internationally. Strategic partnerships with the world’s leading exchanges and an understanding of the importance of technology to improve both price and speed, is crucial. The exchanges need to work continuously to ensure they remain attractive destinations for international capital.

Supervision and innovation in the capital markets can be improved. Sebi has done a great job in fostering the rapid development of Indian capital markets. However, market manipulations need to be dealt with severely, and Sebi needs to play a more active role. Due to the late development of the Indian market, the regulator has so far been prudent, but as the Indian markets get more globalised and mature, Sebi could introduce innovations such as alternative trading venues to add breadth to and modernise the Indian capital markets sooner than would have been possible a decade ago.

Market-making should be allowed to provide greater depth and liquidity to the markets. Presently, market-making is not permitted by Sebi, possibly because it might be very complicated to monitor. However, it is an internationally accepted practice that is essential for the development of the markets, and Sebi should introduce it sooner rather than later.,10.08.2009  Rita Raagas De Ramos

Filed under: Asia, Exchanges, India, News, , , , , , , , ,

Singapore Mercantile Exchange (SMX) Appoints Mr Thomas J. McMahon As CEO – Ex-Director Of NYMEX And Former Head Of HKMEX To Spearhead Singapore’s New Exchange

Singapore Mercantile Exchange (SMX) has announced the appointment of Mr Thomas (Tom) J. McMahon as its Chief Executive Officer.

Mr. Mcmahon brings with him over 25 years of Industry experience in Derivatives and Commodities across Asia and USA. Prior to joining SMX, he was Heading the HongKong Mercantile Exchange (HKMEX) and was former Director of NYMEX Asia. He possesses a deep understanding of the Asian financial and derivative markets having lived and worked in Tokyo, Singapore and Hong Kong for past several years and is well suited to establish SMX into a truly world class pan-asian commodity derivatives exchange from Singapore.

Mr McMahon joins an a formidable SMX leadership team including Mr Ang Swee Tian, Chairman of the SMX Board of Directors and a widely recognized and distinguished veteran of the futures industry, Mr. Jignesh Shah, Vice Chairman of SMX and Chairman and CEO of Financial Technologies India Limited, and Nobel Laureate Mr Myron Scholes, Member of SMX’s Advisory board, Mr. Tan Soo Nan, Member of SMX Board and former CEO of Temasek Capital and Senior Managing Director of DBS Bank.

“I am delighted that Tom will be joining the team” said Mr Ang Swee Tian. “His experience and industry network will serve us well in forging partnerships and drawing membership that will make SMX a leading derivative market platform for price discovery and risk management in the Asian time zone.”

Mr Jignesh Shah said, “I welcome Tom on board of SMX and am confident that under his leadership, SMX will estbalish itself not only as the first Pan-Asia commodities exchange from Singapore but also among the leading exchanges in the world.”

The newly appointed CEO, Mr. McMahon said “I am honoured to be appointed CEO of SMX and am extremely excited to be part of an highly accomplished and competant team that is committed to make SMX the leading global derivatives and commodities exchange from the East.

Financial Technologies Group, the promoter of SMX, brings huge credibility and pedigree to the venture as a recognized global leader in offering its industrial grade, robust and proven Exchange technology IP (Intellectual Property) and markets domain expertise to create the next generation multi-asset financial markets across the world.

Asia which is home to 60% of the world population and a major producer and consumer of most commodities, will play an increasingly important role in influencing and setting the global commodity prices and SMX will play a significant role in the same by providing a transparent and efficient platform for price discovery, risk management, trade execution and clearing.”

Financial Technologies promoted SMX, is the first Pan-Asian international commodity derivatives exchange located in Singapore and will offer a single platform for trading futures and options contracts on commodities such as precious metals, base metals, energy, agricultural products, currencies and commodity indices.

Financial Technologies Group (, which operates the largest exchange and ecosystem network with 10 exchanges and 6 ecosystem, connecting some of the fastest growing economies across Africa, Middle East, India and South East Asia. MCX ( which ranks among the top 10 commodity exchanges globally and MCX Stock Exchange (www.mcx-sx.come) DGCX ( in Dubai, BFX ( in Bahrain, GBOT ( in Maurititus are among the exchanges set-up by the group.

Source: SMX, 23.04.2009

Filed under: Asia, Exchanges, India, Singapore, Trading Technology, , , , , , , , , , , , ,

Asian Exchanges – The Awakening (Part I)

By Stephan Stadelmann, FINETIK

Published in on 01 Apr 2007 12:35:53

The Asian Century

During the past decade, Asia has fallen periodically in and out of favour with investors globally. Excitement has been followed by caution, which has been followed by excitement once again. Today’s focus on Asia, which owes much credit to the rise of the Chinese and Indian markets, shows signs of becoming a stable period of global investment into Asia. It is no coincidence that some analysts have called this the “Asia Century”. Against this backdrop, the exchanges in the Asia-Pacific region have lagged behind their US and European competitors (with perhaps the exception of the Australian Stock Exchange (ASX)).

However, with hindsight, this could turn out for the better for Asia’s exchanges, as it gives them ample opportunity to study the ingredients of past successes and failures. Governments in Asia are much more involved in the business of exchanges than in Western countries, and the process of deciding on change, and how to execute such change, can be cumbersome, and might follow paths that are not always obvious to the observer, or to external firms that decide to pitch for any business with Asian exchanges. However, once Asian exchanges have decided to make change, they tend to be genuinely determined to carry it through.

Challenges and Opportunities

The challenges and opportunities facing the exchanges and their market participants in what is the fastest growing part of the world are substantial.

Let’s look at China, where 2.5 million new investor accounts were added to the Shanghai Stock Exchange (SSE) in 2006 alone, making a total of 41 million accounts. The Shanghai and Shenzhen Stock Exchange exceeded a combined 80 million registered accounts in Q1 2007, and there is no slowdown in sight. SSE’s existing trading system is scheduled to be replaced in Q3 2007 with new generation trading systems designed to accommodate at least 80 million accounts, 20,000 order matches per second and a scalable minimum of 63 million executions a day. The new systems will cater for multiple asset classes such as cash equities, funds, warrants, bonds and financial and commodity derivatives.

Another much talked-about market is Vietnam’s HoSTC (Ho Chi Min Securities Trading Centre). HoSTC is at a very different crossroads on its path to growth and deregulation from that of the SSE, but there are similarities. HoSTC is also doubling its number of trading accounts, and the pilgrimage of foreign institutional and retail investors into Vietnam is ongoing. The demand for investing into the exchange manifests itself in some very peculiar forms: for example, travel agents in Japan sell tour packages to Vietnam that offer tourists the opportunity to open “a trading account (on HoSTC) after your tour of the Museum of American War”. Such tactics aside, the order placement, matching and trade execution processes on HoSTC are still extremely laborious and manual today. By May 2007, continuous trading will be introduced, and by mid-2008 a new trading system with electronic direct market access (DMA) is scheduled to be in place.

From a technology perspective, the global FIX protocol standard has been accepted by stock exchanges in the Asia-Pacific region. However, though interest is on the rise, adoption in practice is slow. Exceptions to this are ASX, leading the way in Asia (using FIX for trading and market data), followed by the Singapore Stock Exchange (SGX). Bursa Malaysia (BM) and the Stock Exchange of Thailand (SET) are following, by launching FIX connections to their trading terminals. China’s Shanghai and Shenzhen Stock Exchanges are leveraging the concept of the FIX protocol, albeit in a modified form: they are using what they term STEP, Securities Trading Exchange Protocol, for their internal benefit.

Legacy System Replacement

There is a need for most if not all exchanges in Asia to replace their current legacy systems. This requirement is being driven by the demands of inflowing investments that compel the exchanges to cope with high volume growth and demand for DMA. While foreign market players are the driving force, domestic participants are increasingly starting to engage in DMA, and domestic trading volumes are also on the rise. Asia’s exchanges are also under pressure to extend their product ranges for foreign investors. This, coupled with the need to increase trading capacity, further confirms the trend to replace legacy systems. The Asia-Pacific region is an increasingly competitive environment in which markets are fighting for an increased share of incoming investments, and one highly visible marketing strategy is to publicise plans to replace and upgrade legacy exchange systems. This may, to some extent, explain why some of the more conservative exchanges seem to be executing such replacement projects half- heartedly in the eyes of foreign market participants and the international software firms that are trying to win these exchanges’ lucrative and prestigious technology replacement projects.

Asia endeavours to be self-sufficient. As a result, its exchanges believe there are opportunities to promote and sell their own trading technologies to other exchanges within the region. For example, SET, BM and Korean Stock Exchange (KRX) are becoming de facto technology vendors to emerging markets like Vietnam. At the opposite end of the spectrum, FT India, a trading systems technology provider, has emerged as a dominant exchange in India with MCX (Multi Commodity Exchange), and owns part of DGCX (Dubai Gold & Commodity Exchange). FT India is currently expanding its activities through active involvement with other exchanges in the region, providing consulting and trading systems.

Market Data

On the market data side, the SSE Infonet business of the Shanghai Stock Exchange launched in Q2 2006 a new level 2 market data feed with a new stringent business model for the exchange data industry. The Hong Kong Exchange (HKEx) and SSE Infonet have now agreed to distribute each others’ market data feeds for cross-listed and specifically selected stocks. Similarly, the Tokyo Stock Exchange and the New York Stock Exchange have agreed to a cross-continental distribution of some of their data.

Another hot topic within the Asian exchange industry is the merging of separate exchanges for cash products, financial derivatives and commodities derivatives, with all the implications of such moves for products and technology.

Last but not least, the expectation of cross-country exchange mergers and alliances has been fuelled by a recent flurry of (often vague) memoranda of understanding between several exchanges in Asia and European and US exchanges wishing to create a presence in Asia.

The activities among Asia’s exchanges in 2006 and early 2007 are only the tip of the iceberg. Stay tuned…

Stephan Stadelmann is a founding partner  of FINETIK Partners.

Filed under: Asia, Australia, China, Data Vendor, Exchanges, FiNETIK Articles, FIX Connectivity, Hong Kong, India, Japan, Korea, Library, Malaysia, Singapore, Thailand, Trading Technology, Vietnam, , , , , , , , , , , , , , , ,