MSCI slams move by Indian exchanges

Ending data-feed pacts with global counterparts ‘anti-completive’, could cause disruption and lead to a cut in India’s weight on global indices, says MSCI

Global index provider MSCI has slammed Indian exchanges’ decision to terminate licensing and data-feed agreements with their global counterparts. MSCI has said the concerted announcement by the three domestic bourses was “anti-completive” and would restrict access to the Indian market.

Global index provider MSCI has slammed Indian exchanges’ decision to terminate licensing and data-feed agreements with their global counterparts. MSCI has said the concerted announcement by the three domestic exchanges was “anti-completive” and would restrict access to the Indian market. It has urged Indian regulators and exchanges to reconsider the move as it could lead to disruption in trading, which could force MSCI to cut India’s weight in its global indices.

On February 9, the National Stock Exchange (NSE) and the BSE — India’s two main exchanges — said in a joint release that they were discontinuing their data-feed tie-ups with foreign exchanges to prevent offshore trading in domestic securities. The move would come into effect after the contractual notice periods expire in August.

“It is a clearly negative development for the accessibility of the Indian equity market for international institutional investors,” said the index provider in a release, hinting that it might have to cut India’s weight in its global indices.

The leading index provider’s indices, such as the MSCI Emerging Markets (EM) Index, are tracked by global exchange-traded funds (ETFs) with cumulative assets that run into trillions of dollars.

Experts say a 100-basis point reduction in India’s weight by the MSCI in the EM index could lead to outflows of over $1 billion. Currently, India’s weight on the MSCI EM index is about eight per cent, and on the MSCI Asia Pacific (ex-Japan) index it is 12 per cent. These help India attract $8 for every $100 getting invested in the MSCI EM index.

“A set of restrictions on the use of traded price data is inconsistent with the practices of any other market in MSCI’s Emerging Markets Index series and could result in an unprecedented disruption of trading in financial products in markets around the world,” the MSCI said.

Earlier, US-based Futures Industry Association, a trade association of exchanges, too had criticised the move by domestic exchanges stating it would "disrupt trading on numerous exchanges around the world and alarm international investors”.

The move by Indian exchanges to stop providing real-time data feeds to global exchanges such as the Singapore Exchange (SGX) and the CME group will lead to suspension in trading of equity derivatives based on domestic indices, such as the Nifty, which are very popular on these platforms.

“Given the breadth of the application of the changes referred to in the announcement, we believe that if the changes are put into effect, the result will be disruptive and harmful to international institutional investors in Indian equities whether accessing the market onshore or offshore,” the index provider said.

The MSCI is known to limit exposure to countries or securities where there are trading restrictions, lack of accessibility or liquidity for investors. A case in point being the index provider not including China-A shares—traded on the mainland—in its global indices as global investors are not allowed to deal freely in them.

“Under MSCI’s Market Classification Framework, anti-competitive measures restricting investors' access to derived stock exchange information receive a negative score in the Competitive Landscape category,” it further said.

MSCI said the restriction imposed by Indian exchanges could “result in a material deterioration of the accessibility of an equity market”. It further said it would review India’s weight after careful consultation with international institutional investors and other market participants.

The index provider has urged Indian exchanges and market regulator, the Securities and Exchange Board of India (Sebi), to revoke the decision.

“MSCI strongly suggests the Indian exchanges and their regulator Sebi reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI

Indexes,” the global exchange provider warned.

Vikram Limaye, MD & CEO of NSE, had told Business Standard that exchanges would continue to provide data to ETF providers to ensure that flows into India are not impacted.