SEBI chairman in favour of competition among bourses

Securities and Exchange Board of India ( SEBI) chairman U K Sinha has said that he is in favour of encouraging competition among bourses. This is wholly welcome. It acknowledges two things. One, competition is necessary to improve efficiency, lower transaction charges and encourage innovation. Two, competition is possible in the exchange business, contrary to the assumption of the Jalan committee, which approaches exchanges with the outmoded vision that infrastructure is mostly natural monopoly. Technological change that creates new possibilities and changes in the way commerce is conducted, taking advantage of technological change, have rendered the notion of natural monopoly virtually redundant in sector after sector of infrastructure . In any case, competing bourses are a functioning reality in developed markets.

While this newspaper salutes the National Stock Exchange’s yeoman contribution to modernising and professionlising India’s capital market , it also recognises that NSE has a virtual monopoly in the business of stock exchanges. Its rival BSE’s share is next to nothing in derivatives trading and one-fifth and shrinking, in the spot market. A new entrant, the MCXSX , has been hobbled by Sebi’s own policy. In the lone segment of currency futures where it is permitted to trade, it has more than proved its potential to offer real competition to the dominant capital market player, NSE. However , Sebi has refused to grant the exchange any further operating avenues, saying that it is in violation of its regulation, the Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges (Mimps). It restricts ownership of exchanges to 5% (15% in some cases) for any person, along with persons acting in concert. The regulation stifles competition in the exchange space, entrenches existing players and creates entry barriers for new ones. By Sebi’s own admission earlier, the cap on shareholding has led individual holders of tiny stakes losing interest in the business. Mimps must change, if Mr Sinha is serious about competition among exchanges.