The National Stock Exchange (NSE) and the Multi Commodity Exchange (MCX) entered into merger talks ahead of the implementation of the universal exchange framework in October, said a top official. The two entities are planning to approach market regulator Securities and Exchange Board of India (Sebi) as early as this month, according to the official.
The merger will help NSE and MCX cement their leadership position both in the equities and commodity derivatives space.
Both the exchanges have readied a blueprint for the merger proposal which will be discussed with Sebi.Sources say NSE entered talks with the commodity bourse soon after the market regulator allowed exchanges to dabble both in the equities and commodities space. The decision was taken by the Sebi board at its December 2017 meet
In the equity derivatives space, NSE has near monopoly, while in commodity derivatives MCX enjoys a lion’s share of 90 per cent.
Currently, MCX has a market capitalisation of Rs 37 billion. In comparison, NSE is much bigger. In December 2016, when NSE filed its offer document with Sebi, it was looking for a valuation of Rs 400 billion. Since then, the valuation has increased further thanks to a good uptick in trading volumes.
Market experts say the merger could be a win-win for both exchanges as competition is set up intensify post October as all existing bourses will look to foray into new segments.
BSE has already announced its aggressive plan to enter in to commodity derivatives and offered incentives to its members to start commodity derivative trading under same membership. The NSE is ready with its commodities plan but is yet to come out with details.
On the other hand, MCX will need huge capital if it wants to aggressively foray into the equities space.
The proposal could also address NSE’s pet peeve–going public. Despite mounting shareholder pressure, NSE has not been able to list due to legacy issues. As MCX is already listed, the merger could lead to back-door listing for NSE, say experts.
NSE currently holds 15 per cent stake in NCDEX, a commodity bourse. Experts say the exchange may have to divest this stake if the MCX proposal goes through.
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