In simple terms, MSX is a new stock exchange in India, which has been approved by SEBI (Securities and Exchange Board of India) to introduce derivative contracts. These include options and futures contracts, similar to what we see on NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). This means that MSX will offer instruments like call and put options, along with expiry dates for contracts.
Originally called MCX Stock Exchange, it was rebranded in 2014 to the Metropolitan Stock Exchange (MSX). Currently, it's also referred to as MSXI or MSE. As with other exchanges like NSE and BSE, SEBI regulates MSX, ensuring that it operates within the legal framework of the Indian stock market.
The market is discussing the shift in liquidity that might occur, with MSX introducing new contracts. For example, brokers like Groww and Share India Securities have invested in MSX, and they may promote MSX’s contracts on their platforms, giving it a competitive edge over NSE and BSE. Investors may begin shifting their focus to MSX due to the new opportunities it offers.
The major concern is the conflict of interest that arises when brokers, who also have a stake in the exchange, influence the trading environment. This could lead to biased practices that might harm retail investors, even though SEBI is the top regulator.
With the ₹240 crore raised, MSX plans to improve its technology and enhance trading volumes. The exchange will start operations in early 2025, likely from the first week of January, with the launch of new derivatives contracts and an index named SX40.
The introduction of MSX will intensify competition in the Indian stock market. NSE and BSE will now face a new competitor that is set to provide additional contracts and a fresh platform for trading. As the market is already growing, MSX’s entry could shift volumes from NSE and BSE, especially if it can offer better products and services.
MSCI (Metropolitan Stock Exchange of India) is a stock exchange in India. It offers various contracts, including derivative contracts such as call and put options. The exchange recently received approval from SEBI (Securities and Exchange Board of India) to operate with these new contracts and expirations. The exchange has seen increasing discussions in the market due to its regulatory aspects.
Currently, MSCI’s liquidity and overall business activities are growing, but the main concern lies in the level of regulatory scrutiny. While the exchange may be gaining traction, its operation alongside large brokers raises potential conflicts of interest, especially concerning retail traders.
Four prominent brokers have invested in MSCI:
These brokers have collectively purchased around 119 crore shares in MSCI, with a total valuation of ₹1,200 crores. Share India Securities, for example, has acquired 4.95% of the stake, amounting to ₹59.5 crores.
Share India Securities holds 4.95% of MSCI, with an investment of ₹59.5 crores for about 29.7 crore shares. Details on the stakes held by the other brokers are still not fully disclosed, but they have invested a significant portion as well.
The core issue is a conflict of interest. Brokers investing in the exchange may not fully protect the interests of retail traders. If a complaint is raised against a broker by a retail trader, the exchange must investigate the matter. However, this creates concerns about the fairness of such investigations, as the brokers have a vested interest in the exchange’s success.
Brokers like Grow and Zerodha manage a significant portion of retail trading in India. Their investment in MSCI could create a situation where broker and trader interests conflict. This might undermine trust in the regulatory system, as the exchange may not conduct investigations with full transparency when brokers hold a stake.
MSCI is launching a new index, sx40, with a weekly expiry starting in January 2025. This will introduce more options and derivatives into the market. However, there are concerns that this could lead to increased speculative trading, raising risks for retail traders.
The sx40 index’s weekly expiry will likely put pressure on brokers like NSE and BSE to introduce similar products. Brokers may start offering MSCI contracts to attract more traders, increasing competition. This could influence how brokers market their services and provide new opportunities for investors.
In the past, regional exchanges faced conflicts of interest as brokers controlled liquidity and influenced exchange operations. SEBI addressed these issues by consolidating exchanges. To avoid similar conflicts, brokers should ideally operate separately from exchanges, ensuring fairness and transparency in market functioning.
SEBI has raised concerns about the increased risks to traders from multiple expiry days. Research indicates that daily expiry contracts have historically led to higher losses for option traders. With more exchanges introducing derivative products with different expiry dates, traders may face even greater risks due to the increased number of expiry days.
The combination of brokers owning stakes in exchanges and the introduction of more expiry dates could result in:
Retail traders should exercise caution as these developments could lead to significant financial risks without proper safeguards.
Retail traders can take the following steps to safeguard their interests:
