INTRODUCTION OF INTEROPERABILITY SPURTS MSE’S REVENUE

2008-formed Metropolitan Stock Exchange of India (MSE) is one of the exchanges that popularised currency trading on a stock exchange platform in India. Now, MSE is eyeing growth that will be driven due to introduction of interoperability, said Kunal Sanghavi, Chief Financial Officer in an interview with Jescilia Karayamparambil

Edited Excerpts: • Tell us how interoperability helped MSE?

NSE Clearing Corporation went live with interoperability in the currency segment on August 19, which took place very recently. Post this implementation, we have seen spurt in our volumes, turnovers and open interests as well. It is a very positive development. Interoperability has opened up new avenues for growth in equity, equity derivatives and other segments. It is more than a product launch for us. We have invested significant amount of time and efforts on this and have been working on it for three years or so, along with regulators and other stock exchanges. There has been significant investment in technology as well. We have worked on to connect with other clearing corporation on real time basis. This has opened up avenue for MSE’s clearing corporation to go out and get clients. So, earlier they were like a captive unit. Now it is fullfledged business. They are getting clients and offering differentiated services. It is a very good development after interoperability was allowed.

At present, about 90-95 per cent of market share of the whole space of stock exchanges and clearing corporation lies with National Stock Exchange and its subsidiary. At least 25 per cent of it will go to other stock exchanges over the next two years. That is a major change. In a way, India is slowly doing away with monopoly in the industry. This is very healthy for the customers as well.

• At present, markets are volatile. How do you see that impact MSE’s businesses?

While the float does not vary a lot, the change in transaction volume impacts us. At the same time, our listing income does not change much, but obviously reduction in transactions lead to loss. However, with introduction of interoperability there has been a spurt in revenues. So, in a way stock exchanges are not impacted by volatile markets yet. We have witnessed a spurt in turnover and revenues.

• What is your view on the current slowdown?

I do not see this as a slowdown but an an impact due to reforms which leads to change and change can be painful. Reform brings about some kind of disruption and change in methodology in the way things function. Such changes are good.

At present, the exchange is trying to focus on the future and be ready for the next big wave that will come. We have invested heavily in technology to be prepared for the next big change that will come in the next few years. Keeping a longterm vision in mind, MSE is investing into products that will yield revenues in the next threefour years.

•What is MSE’s spends on IT?

We have to invest a lot more in interoperability. Last year, we spent around Rs 18-20 crore. Our IT expenditure has reduced slightly last year. This is mainly because we as an organisation are becoming lean. A large portion of IT spending is into new technology. It is an important ingredient of a successful, growing organisation. We are not spending more on maintenance but into new technology—providing new features and better prospects in the business as well.

•What is MSE’s last year revenues?

Overall, our topline is about Rs 12 crore. The gestation period for any stock exchange is 10-15 years globally. So, we are in track as we completed our decade into the business and have been able to break even in the 10th year. We have moved from loss-making to a growth-oriented company. Barring one year, we had been into losses. It is only now that we have reduced our losses. It is time to get into profit mode and the numbers are supporting this move.

We had losses of Rs 54 crore as of March 31, 2018. We were fairly good last year compared to a year before. Our consolidated loss has reduced to Rs 40 crore last year. Over last few months, there has been a constant improvement in the overall numbers.

•Now that MSE is in profit mode, would you be able to share any targets?

It will be too early to talk about the projected number at this stage. Although, we have done some working around it. We want to see more growth before making any projections.

•What do you think about the proposed policy of minimum 35 per cent public shareholding. How will it impact companies on your platform?

It is not easy for companies to digest this policy either ways. On one side, it will be difficult for the companies to find an investor for whatever dilution they have to do.

The reason being it is a large chunk. It will significantly increase supply in the market, where valuation will be harmonised. In case of closelyheld companies, their demands are very high and the minute there is supply of their stakes, it will subside the demand and the valuation will take a toll.

The other side to this is the promoters that are worried about their stakes getting diluted. However, if it turns out to be good for the economy in the long run, then the government will introduce it. There is a lot of hue and cry around this. Thus, there is some uncertainty around its implementation.

It may be good when it is done, but will we be able to do it easily, is the question. If the companies cannot find investors, they might have to get them de-listed as they might become non-compliant. Imagine the condition of existing shareholders, they will be stranded if the company will be de-listed.

The practical aspect of this policy is very important and time will tell if things are possible or impossible.

•What is the reaction of investors and promoters to this?

The investors are indifferent beyond a point. But in case of promoters, they are completely worried.

•There was a decline in P-notes. How has that impacted MSE and rest of the exchange?

Basically, P-notes is an instrument issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator. There is this perception that more transactions in the stock exchange happens from them. But I would like to counter the perception with two things. Firstly, look at the domestic demand—the way monies have been flowing from Mutual Funds and savings into equity market. This flow has been increasing over years. So in a way the decline in P-notes have been neutralised.

Talking about P-notes, it has dramatically reduced compared to last year and that does impact stock exchanges. One can attribute this to multiple things—slowdown and global turmoil. Foreign investment has also dropped compared to last year. The government is opening up lot of sectors to bring back foreign investors. There is a conscious effort.

•When do you expect the Indian economy to improve?

Market senses the problem way before it strikes. In the next two years, you will start seeing positive impact. In the end, all is driven by perception.

The government is not leaving any stone unturned to change the perception. There are a lot of sops and initiatives announced over the last few months. Finance Minister Nirmala Sitharaman is coming out every other day to announce measures to revive the economy. It is phenomenal. The downside is behind us. I do not see anything more bad.

•What are the challenges the capital market is facing and looking at government to provide some ease?

The five per cent holding limit by a single investor is hurting the market. If it is a financial institution, they cannot invest more than 15 per cent in the particular space. This stops many from investing in the market. I do not know if it right or wrong to have a limit but it is definitely hurting the capital market.

Securities Transaction Tax (STT) is a big deterrent for the capital market. Multiple representations on this was made to the government. If STT is done away with, we will have a level playing field. For government, it is not a huge revenue. But it is a very big incumbent to have the right liquidity in the ecosystem. It is hampering development of the capital market. The government should do away with SST and make Indian exchanges at par with global exchanges.

•What is the progress made in Social exchange?

We have signed an MoU with an impact organisation that understands the social and sustainability space better. We expect them to guide us to define products and services. After that was announced in the budget, all the stock exchanges have been looking into it and so is the regulator.

•Is there any conversation around any form of merger?

At present, there is no such conversation.