* MCX-SX sees thin volumes in first day
* Faces challenges to win market share
* Derivatives key battleground for exchanges
By Rafael Nam and Abhishek Vishnoi
MUMBAI, Feb 11 (Reuters) - India's new stock exchange MCX-SX
attracted thin volumes as it started trading shares on Monday,
taking up the challenge of winning market share from dominant
players National Stock Exchange (NSE) and BSE Ltd.
The value of shares traded on the MCX-SX in its first day
was just 6.9 million rupees ($128,900), its web site showed,
compared with 94.57 billion on the NSE, the larger of the two
"(The) earliest we can know whether MCX has made a mark in
equities is five years from now," said Phani Sekhar, a fund
manager at Angel Broking.
Some brokers are cheering on MCX-SX, which quickly built one
of the country's top commodity bourses, in the hope it will push
down trading costs and drive development of trading products.
Although trading volumes are expected to rise in line with
the government's goal of bringing more retail investors into
stocks, exchanges face a gruelling battle for market share.
"It's not surprising that initial volumes (on MCX-SX) are
very low. It may remain in low range for next few months," said
Abhay Jain, senior equity advisor at SSJ Financial Securities.
Policymakers have long sought to bring more retail investors
into stocks via mutual funds, which owned only 3.6 percent of
the broad BSE index last year, according to Citigroup data.
Gold and property are preferred by many investors in India,
where fewer than five in every 100 people buy equities, either
directly or through mutual funds, regulatory data show.
By comparison, more than half of Americans own stocks, many
through 401k pension plans, according to a Gallup estimate. In
China, 86 percent of trading on domestic markets is carried out
by retail investors.
The total value of share trading on the NSE was $526.1
billion last year, compared with $110.3 billion on the BSE,
according to World Federation of Exchanges data. Combined, that
amounts to a quarter of the $2.6 trillion traded in the Shanghai
BATTLE WITH NSE
The entry of MCX-SX sets up a battle with NSE, once an
upstart itself. After starting stock trading in 1994, NSE
overtook BSE several years later, in large part by introducing
new derivative products.
The competition is also coloured by the acrimonious
relationship between MCX-SX and NSE, which have frequently
sparred publicly, especially over fees. Both already compete
aggressively in currency futures.
Costs could be the first battle. Traders say MCX-SX's
structure lowers trading costs. NSE has countered by lowering
membership fees for brokers under certain incentives.
The bigger battle could be waged in derivatives. The NSE has
posted average daily turnover in this segment of 1.22 trillion
rupees so far in the fiscal year through March, accounting for
the bulk of its overall equities trading.
MCX-SX is already focusing on this by offering to reduce
settlement times in futures and options.
MCX-SX has experience to fall back on. One of its two
controlling shareholders is Multi-Commodity Exchange of India
Ltd, which operates commodity exchange MCX. The other
major shareholder is Financial Technologies (India) Ltd
, which provides trading software for brokers.
Both the NSE and BSE are owned by domestic and financial
institutions, with Deutsche Boerse AG and Singapore
Exchange Ltd owning stakes in BSE and Goldman Sachs
Group Inc, Citigroup Inc, and Morgan Stanley
owning stakes in the NSE.
After starting trading in 2003, MCX quickly overtook India's
National Commodity & Derivatives Exchange Ltd (NCDEX) in trading
of gold and metals, in large part by focusing on developing
"MCX's strength has been business development and they know
how to create liquidity for new contracts," said Gnanasekar
Thiagarajan, a director at Commtrendz Research.