Proposed Merger of NSE and MCX ; What it means to the Investor ?


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The two big Stock Exchanges of India-viz., National Stock Exchange and the Multi Commodity Exchange have entered into merger talks ahead of the implementation of the Universal Exchange framework in October. These two Exchanges may soon submit proposal to market regulator –SEBI this month for the approval.

The merger will help both the NSE and MCX cement their leadership positions in their own fields and will lead to synergies for both in Equity and commodities derivatives segments. SEBI may call both of them for a detailed discussion soon to understand the modus operandi of the scheme with Investors’ interest as focus. The surprising factor is that NSE has entered into talks with MCX even after SEBI permitted exchanges to dabble both in equities and commodities space as per Sebi’s Board meeting agenda in Dec 2017. However MCX did not confirm this market news.

The idea is that NSE seeks to be a leader in this Commodity segment too, besides being so in Equity and derivatives space already. In the equity derivatives space NSE has near monopoly while in commodity derivatives MCX enjoys a lion’s share of 90 % with Rs 37 Bn market capitalization. NSE valuations are expected over Rs 400 Bn. The will eventually lead to a lot of benefits to the Investors and the Exchange per se like economies of scale, Investor consolidation, improved customer focus and services and integration of data and analysis and many more.

The merger is definitely seen as a ‘win-win’ initiative for both the exchanges and the investors as well. Single documentation, reports and contracts from one exchange, follow up and decision making will be easy for the investors. BSE has already announced its aggressive plan to enter into commodities derivatives market and has offered incentives to its members to start operations under the same membership. This will help NSE’s proposal to go in for public issue soon whereas MCX is already listed. This may lead to an easier listing for NSE. Of course the shareholders of both the exchanges will have to approve this which is a routine perhaps. Sebi and NCLT also have to give their nod for this initiative.

The key for success of this model will hugely depend upon the smooth integration of data, operations and systems supported by high tech. modules as the volume will soar into unprecedented numbers after the proposed merger as and when it fructifies.

NSE having 15 % stake in NSDEX, a commodity bourse may have to divest this stake if the merger proposal goes through. All said and done the Investors will see huge benefits under the integrated exchange business model!

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