DSIJ Mindshare

GAME-CHANGERS Of The Evolving Investment Ecosphere

The Indian markets have gone through a transformation over the past two decades. From a single bourse market largely controlled by a coterie of brokers, the Indian capital markets have evolved to keep pace with the changing times. With a change in leadership at the two premier bourses, the BSE and the NSE, and the entry of the MCX into the picture, the Indian capital markets are once again at the cusp of sweeping changes. Shailendra Lotlikar takes you through the current state of the markets and the likely shape of things to come.

How many of you know what a trading ring and an open outcry system is? Well, if that sounded like too smug a question, allow us to put it another way. How many of you have traded in a trading ring where the open outcry system used to be followed? We are sure, if we had taken a poll on this, the numbers of those saying “aye” would be abysmally low. However, the terms are markers of what you call evolution – a sea change happening in the way things are done over a period of time. The Indian capital markets too have gone through this phase in their process of evolution over the past 138 odd years. From the good old trading ring where the open outcry system was the way of price discovery to electronic trading terminals which have enhanced the overall efficiency and quality of trading in stocks, the Indian markets have come a long way. 

There is really no need to discuss the finer historical details of the capital markets in India. From their inception in 1875 when the Bombay Stock Exchange actually began operating, till today, the markets have gone through their own share of ups and downs, trying to fulfill their stated objectives all the way. 

Companies have been listed, delisted and relisted. Regulations have been framed, reframed and realigned to the emerging trends. Intermediaries have shaped up to keep in sync with the changing times. Settlement cycles have come down from around 15 days to At The Cusp of Change just about two days, not to mention  the elimination of the menace of bad deliveries. New products have come in, and the Futures & Options segment, in fact, is the main driver of market volumes today. All this had one stated objective – to improve the efficiency of the markets with the sole aim of ensuring better wealth creation via the most vibrant asset class, i.e. equity. The question is, have we collectively managed to achieve those objectives in the real sense of the term – inclusive wealth creation? If not, what has plagued us and where do we go from here? All these questions become even more important in the context of the developments that we are witnessing today. Let’s see how. 
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Historical Tranformation

From a market predominantly served by just one stock exchange for over 117 years (not including the regional stock exchanges), the first winds of change swept across the ecosystem when the National Stock Exchange came into existence in 1992. Competition set in, and the markets were never the same again. Electronic trading took over from the manual open outcry system. This changed the price discovery process, making it more efficient and largely foolproof. Transparency set in and investors began enjoying the true benefits of the capitalistic growth unleashed by a rapidly growing Indian economy. 

Not Without Jolts

While the markets kept improvising and got only better, the road wasn’t really all that smooth. Development and modernisation have come, but with their own sets of problems and difficulties. Ingenious minds have not failed to ensure small and big hiccups all along.

But the true resilience of the markets lies in their ability to overcome these hiccups. We have managed that part quite well, with the markets sustaining some really big scams to bounce back quite smartly. Even the worst of the financial crises of the recent times have hurt but not quite killed the spirit of our markets. This indeed is a very commendable fact. So what can we expect ahead?

At The Cusp of Change

While all the aforementioned factors have ensured the establishment of a well-oiled working system supported by a strong infrastructure, the development of the market has remained an elusive goal. Today, however, we are at a point of transformation yet again. Two of the premier bourses have seen a handing over of the baton to a new leadership, and one new exchange is about to enter the markets. How well does this work out for the future of the markets and more particularly investors. Mind you, when we refer to investors, our main audience is the person on the streets, who should be the main beneficiary of the develop ments in the marketplace.

Will the new leadership at the BSE and the NSE along with the MCX, which is scheduled to launch its equity operations soon, be able to expand the market? Or will they vie for a share of the market as it stands today? The former situation would bode well from all angles, while the latter possibility could well be a disaster in the making.

Seeking the answers to these questions, we have interacted with the head honchos of all these three institutions to get a sense of what lies ahead. Ahead in this story is what they said and what you should make of it. 
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The Current State Of Affairs

If you look at where the equity markets stand today, there is a lot to be done yet. Here are some statistics that should throw light on what we mean. In the Indian context, around 92 per cent of the market turnover comes from Equity and the Equity F&O segments. Contrast this with the data for a developed market like the US. There, only a little above 10 per cent of the exchange turnover comes from Equities, while the remaining comes from products such as Interest Rate Futures, Currency Futures and more importantly Corporate Bonds. In fact, Corporate Bonds account for a good size of the exchange trade.

Another fact that needs a mention here is that more than 75 per cent of volumes in the equity markets are from Cash Settled Index Futures & Options, which according to common belief, do not directly lead to capital formation. Within that, around 90 per cent is contributed by a single instrument – Index Options. (Data Source: SEBI Bulletin, December 2012)

As for the cash market, the scene isn’t very different. 78 per cent of trading in this segment is intraday in nature, and again, does not contribute to any meaningful capital formation. The progress on this front is not very encouraging either. Volumes in this segment have been dipping on a year-on-year (YoY) basis. The total cash market turnover decreased by more than 25 per cent in FY12 YoY. Till the last trading in November 2012, the average monthly turnover for the financial year FY13 stood at INR 261644 crore. (Data Source: SEBI Bulletin, December 2012) 

In view of the fact that India’s is a market that is almost 138 years old and an economy that is currently among the best growing in the world, here are some more statistics which go on to prove how much more is yet to be done. The top five cities still contribute to more than 80 per cent of the total cash market turnover. The contribution of the top five cities to the cash market turnover of the NSE and BSE increased to 81.60 per cent in FY12 from 80.12 per cent in FY11 (Data Source: SEBI Bulletin, December 2012). In November 2012, almost 46 per cent of the turnover in the cash market was contributed by just 25 brokers, while the top 100 scrips contributed to nearly 78 per cent of the total turnover.

There is another piece of data which shows why our stock markets have a long way to go. This is the share turnover velocity (STV), which is a ratio that reveals the relationship between the turnover of domestic shares and their market capitalisation. The STV in the Indian markets is very low – the average STV for the NSE and BSE for CY12 stood at 45.2 per cent and 9.3 per cent respectively. These are the lowest among BRIC nations and far lower than some of the developed markets like NASDAQ, OMX and the Tokyo Stock Exchange (Nikkei 225). All these markets have a STV of more than 100 per cent. The lower STV signifies a lower liquidity, which in turn increases the impact cost of trading. This is clearly reflected in the recent freak trade incident, wherein a wrong order was punched to the tune of INR 650 crore and which brought the Nifty down by almost 15 per cent within a fraction of a minute.

The lower STV signifies a lower liquidity, which in turn increases the impact cost of trading. This is clearly reflected in the recent freak trade incident, wherein a wrong order was punched to the tune of INR 650 crore and which brought the Nifty down by almost 15 per cent within a fraction of a minute.

This is all purely numerical evidence of how much more our markets need to really mature going forward, and the herculean task that is at hand for these new leaders who have either assumed or are shortly to assume charge of their respective exchanges.
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While all these are areas that need attention, here is something more to chew on. The spread of the Indian market has always been a point of debate. From where it began, the Sensex is currently trading within a striking range of crossing its lifetime high point. But look at what the statistics reveal about the participation levels in the market. Only a miniscule one per cent on the approximately higher side of our population participates in the equity markets. For a total population of around 1.2 billion people, which is considered to be our greatest economic strength, isn’t this number abysmally low? Let’s put this in the correct perspective.

Now that the number of service providers is on the rise, is it not time to see that the spread of the market also increases? After all, prudent economics has it that supply should always follow demand. Anything that happens the other way round could lead to imbalances and instability in the market. The state in which the stock-broking industry is today would probably be the best example of what happens when the supply exceeds the demand for service providers.

All these issues are even more pertinent today, especially when looked at from the international perspective. While there is a lot of consolidation happening on the exchange front the world over, we in India are looking at adding more exchanges. By logic, consolidation in this industry has its own advantages as well as pitfalls. Stock exchanges can benefit from economies of scale in their operations as well as in trading. The establishment of compatible or shared trading platforms post consolidation can result in operational economies of scale, while trading economies of scale can be realised from the attainment of higher market liquidity and reduced market fragmentation.

However, while all this sounds good in theory, markets across the globe differ in character. What is good for developed and matured markets like the US may not necessarily hold true for emerging markets like India. In fact, recent developments in the US on this front are sending out mixed signals. Way back in 2007, the NYSE was taken over by Euronext to create the NYSE Euronext Exchange. In a recent development, the ICE came in to take over the NYSE Euronext in a further move of consolidation. However, with all this consolidation, while the transaction and settlement costs have gone down, the combined volumes have not really picked up. Hence, while investors tend to benefit from consolidation it may not work out to be a good idea from the long-term market development perspective. 

The Road Ahead For A Healthy Market

Here is what we need to do in order to develop a healthy capital market. In fact, there are a whole lot of aspects that we would now need to pay attention to in order to achieve what we are set to by trying to expand the service providers’ network. Older players need to come around to the need to be more agile, and the new entrant has to ensure that it brings in the best industry practices.
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Here are some pointers that we are sure those at the helm of affairs would pay attention to in order to ensure a safer and better market-place for investors:

  • Overall Market Development:

    There is a need to develop other market segments in order to provide the required depth to investors and capital raisers alike.
  • SME Segment Development:

    SME capital markets have not been able to pick up in the Indian context despite a fair number of attempts at doing so. There is a strong need to provide the required support in terms of capital raising to this vital segment which constitutes a good portion of the overall Indian economy. 
  • Development Of Bond Markets:

    Trading platforms for the corporate bond market were set up six years ago in India, but this market has not really picked up the way it should have. There have been innumerable discussions on the need to develop the bond market in India, and it is time that this initiative was taken up in a serious manner by all stakeholders collectively. 
  • Rationalisation Of Costs:

    One of the most important needs of the hour is to rationalise costs. This could come up as a natural fallout of the increasing competition. Lower entry costs will help in meeting the objective of the government and the regulator in making Indian capital markets much deeper and wider. 
  • Better Government Policies:

    The last but most important factor is that we need to have good government policies directed towards building a better market-place. The migration of volumes from equity to other segments like commodities after having introduced a Securities Transaction Tax (STT) is a fine example of how policy initiatives need to be carefully chalked out. 
  • Investor Education And Training:

    Massive education and training need to be intensified to increase investors’ knowledge on investing in the stock exchange.

While we have spoken to many market intermediaries before building up on what ails the Indian market and what needs to be done to rectify it, most importantly, we have interacted with the BSE, NSE as well as the MCX-SX to get a view from their top executives on the way ahead for the markets. The interactions are about the likely scenario to build up going ahead. We leave you with these thoughts, which should tell you what to expect from the marketplace going forward.
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NSE changed the way India traded and has not looked back ever since it started in 1992. We spoke to Ravi Varanasi, Sr. VP & Head Business Development at the Exchange to get a view on the road ahead.

Ravi Varanasi, Sr. VP & Head Business Development, NSE

At the outset, can you take us through the transformation of the Indian stock exchanges?

There are two ways of looking at it. If you look at the market, you will find that it has grown substantially in the last 17 to 18 years. Since electronic trading has started, the face of the markets has changed completely. From being a restricted club, it has moved to a stage where trading terminals are present across the country. Now, any investor can trade from anywhere in the country through a member terminal. At present, we are covering almost 2000 cities in the country and we have almost 200000 terminals. So the level of trading has shifted to a level to reach every investor. If somebody wants to invest, we have created the infrastructure which is one of the best in the world. 

The base has been created from the market micro-structure perspective and also on the technological front. On the technological front, nobody has ever tried to reach such a penetration level. If you look at markets in the US or Europe, they are essentially institution-based markets and the retail participation is relatively low. Basically, nobody has tried to create a market that is this large and reaches so many people. On the risk management front, the SEBI has been proactive and unique. So the micro structure and the base that has been created over a period, under SEBI guidance, is one of the best in the world.

India has transformed from being a single product market to a multi-asset market with equity products, F&O, currency futures and interest rate markets. Some products have not picked up for several reasons, but they have been offered. 

How has the participation level changed over time? 

The participation level has changed quite as much over a period of time and if you look at direct investors, there are almost a crore and a half people who invest directly in the markets. Everybody says that this number is very small and is just one per cent of the total population, but that is a slightly different way of looking at it. If you look, there are only three and a half crore tax payers, which is also just over two per cent of the total population. Out of these, about 40 per cent are investing directly, and if you look at investors through LIC or MFs, the numbers are much bigger.

Some investors do not want to invest directly or do not have the ability to do so. So to that extent, where you do not have a population that has risk capital to invest in the equity markets, then the numbers will be small. There is always a debate between direct investment vis-a-vis indirect investment. For people who do not have the capability, both on financial as well as knowledge terms, it may be better for them to come through the indirect route.
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But the main premise of the Pherwani Committee Report was that you want to bring more and more investors into the fold. Even after setting up two primary exchanges, two per cent is what we have? At the end of the day doesn’t this sound too ridiculous looking at the numbers? 

See, what we are referring to is the number of tax payers. Only they have the capability to invest. If you look at 1.4 crore as against 3.4 crore, that is about 40 per cent of your base. This number was achieved by the US mainly on the back of retiral money through 401(K) accounts! 

In our country, the problem that we face is that retiral money does not come to the markets. It is very easy to question what we have not achieved. But the universe is of 3.4 crore people, and achieving 1.4 crore is a reasonable penetration that has been achieved. 

Can we look at the other angle, which is that, the Indian market is yet to mature a lot with respect to direct investors coming into the markets?  

I do not say that. What I say is that there is a lack of capacity of risk capital that could be invested. When we are looking at taxable income as the threshold limit beyond which the people will have risk capital to invest, the numbers are not large. Consistent GDP growth and efforts from the government in spreading the wealth effect, could build the financial capacity of a wider population. When people have surplus money that can be invested as risk capital, infrastructure already created is readily available. The exchange constantly endeavours to increase financial awareness among the population. On an average, the exchange conducts about 1500 investor programmes a year, besides advertisements through mass media etc. The main focus is to get small investors to use simple products.

So, we have 35-40 per cent as the savings rate, and we are not able to channelise that amount into the market... Now, coming to the base part of it, if we are saying that our addressable audience is fixed and for the time being it is not growing as much as it should have been, how good do you think is this idea of having multiple service providers? How is it going to increase the market pie? 

There are ways of looking at this. In the year 2007-2008, we have seen the launch of the ETFs, which are targeted at retail investors. Now also we have products in the pipeline which are retail oriented, and those will help retail to come into the market – like the Rajiv Gandhi Equity Savings Scheme that has been launched recently. For some people, stock markets look a bit complex. So, you need to have products that are easy to understand and use. ETFs are one such product which could be a vehicle for small retail investors to get into the market. We have been seeing good traction, with both gold and Nifty ETFs gaining ground. 

The other way is to get the retiral funds into the stock market. For this, the Finance Ministry has paved the way but there are some issues which need to be addressed. As I said earlier, most advanced markets have achieved significant retail penetration on the back of retiral funds. That would be the fastest way to take the benefits of equity markets to a larger population. 
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Is there a game plan that is ready to cope with the new market scenario that is going to happen going forward? 

Yes, absolutely! I may not be able to share specifics at this point of time, but what I can say is that there are multiple segments that need to be addressed. If you really look at the market, there are small retail investors who need certain kind of products, in the middle there are a lot HNIs/traders/corporates and at the other end, there are sophisticated investors including institutions, funds, people doing algorithmic trading, etc. So, there are three categories. On the retail side, a huge amount of effort is being done from our side that will make their life easier and help people to invest in equities. 

The cost of reaching through the intermediaries is being brought down constantly. We have developed systems where the infrastructure cost of expansion has been brought down substantially. The whole idea is that brokers can open their branches at small places, with the establishment cost being so less that they can breakeven with very few investors.

There are talks of there being several issues on which the three exchanges are at loggerheads. Would you like to share your thoughts on what those issues are?

There will be a difference in opinion, but there is mechanism that the SEBI has formed where we discuss all the issues and reach a consensus. 

Can you share your thoughts on whether money is really moving from equities to commodities? 

If you see the volume trends of equity derivatives and commodity futures, equity derivatives have seen a fall on volumes over the past few years, whereas commodity futures markets have seen consistent growth. Both the markets face differential costs based on differential taxation and the cost structure is not favourable to equity derivatives.

Automated trading has always been a problem, and there are always big mistakes that have happened. Are risk managing methods capable of managing these kinds of faults?

Actually, such mistakes can happen in both automated and non-automated trading. In fact, the SEBI has prescribed a series of checks and balances for algorithmic trading in India which are world class, and most markets have started emulating what has been done in India.
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Coming to the Investor Protection Fund, there has been a lot of talk that the fund is not being used for the purpose it was intended. It is said that the exchanges are using those funds to propagate themselves. Can you clarify? 

The use of Investor Protection Fund is very closely regulated and the SEBI has specified the purposes for which the same can be used, which are diligently followed.

Do you see consolidation happening in the Indian context very soon? Is the NSE doing anything on this front? 

SEBI is examining the relevance of regional stock exchanges. 

How active is your SME platform?

On the SME platform, there are a couple of listings that have happened and are doing very well. We have consciously gone for fundamentally strong companies from manufacturing companies. For proper growth of the market, a rigorous and diligent approach is required.

Where do you see the Indian markets heading, and what role will the exchanges play in the same?

India has been growing consistently and at a better rate than most other markets. The demographics are expected to remain favourable through to 2040. A great economy supports a great market. This market is going to grow, and it will be continue to be a retail market. 

Any specific measures that you would like to take to increase the market pie? 

There is a large focus on spreading financial awareness and education. As mentioned earlier, we conduct about 1500 investor awareness programs and spread awareness through mass media. We have actually gone to the school levels to promote financial literacy. In Tamil Nadu, 6.5 lakh students are going through these kinds of courses. We are offering BBA and MBA courses in Financial Markets with many universities. 

How are you planning to bring down the trading cost to investors? 

As I mentioned earlier, we have been continuously working on bringing down infrastructure costs of the intermediaries, which in turn would reduce trading costs to investors. They have multiple ways to reach the trading system through broker terminals, over the Internet or through mobile.
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MCX-SX is all poised to compete with the old warhorses of the Indian capital market. In an interview, Joseph Massey, MD & CEO, MCX-SX told us what the exchange plans to do in order to improve the vibrancy of the Indian capital market going ahead.

Joseph Massey, MD & CEO, MCX-SX

What is your take on the present state of the Indian capital markets in terms of
  • Infrastructure
  • Regulatory Framework
  • Investor Participation

I think it would be justified to say that our regulatory and support infrastructure system is well developed and all we need now is to focus on business development, product innovation, investor broad basing and concentrating on global efficiency and well developed range of services to meet the financing needs of the industry and government.

Accordingly, we need to focus on business and product development in the capital market as the entire industry is dependent on more cost effective capital raising and risk management. If we fail in these aspects, our markets would gradually get exported to global financial centers. Today, more capital is being raised privately from the domestic and global markets than from the public markets, which in a way shows the health of the public markets. We need more product innovation and more investor base of various risk profiles to get a wider variety of capital. 

The market infrastructure in India is poised to grow with new timely initiatives in the capital market such as creation of a debt segment for corporate and government bonds, interest rate futures, currency derivatives, SMEs, etc which globally account for about 87 per cent of exchange traded financial products. With the ongoing effort to develop these segments, I am sure the Indian capital market would leapfrog in terms of its contribution to the real economy. 

With the concurrent efforts and support from the government as well as the regulatory authorities, the capital market is bound to emerge as an instrument of inclusive and sustainable development for the Indian economy. 

How does one ensure a larger participation in equity markets now that there are more number of Exchanges catering to them. 

There are many ways of expanding any market as seen from banking, insurance and telecom sector. Two important aspects of growing such infrastructure is greater competition which the government and the regulators are pursuing now and the second is the greater capitalisation and freedom of such enterprise which is also being permitted now. The last area of support required is to ensure making the environment as conducive for capital raising as possible and any constraint in raising capital or raising it cost effectively should be tackled by an enabling policy and this thrust has been seen in recent times. 
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Does a larger number of exchanges mean better penetration of equity as an asset class?

The benefits of enhanced competition in the market infrastructure space has already started showing its vibrancy and it will further magnify like what we have witnessed in other regulated sectors such as telecom, banking, insurance etc. The benefits accrued are in the form of lower costs, better services, product differentiation, superior technology, change to proactive approach, enhanced global competitiveness and a wider support. It would further provide for prudent risk management processes and substantially well spread participa- tion from across the country at competitive costs.

What are the steps that you as a new entrant have chalked out to ensure a better and vibrant capital market for India? 

Our focus is on a 360-degree development of the Indian capital markets. We would emphasise on development of all market segments be it the equity spot and futures, interest rate and currency derivatives, debt instruments, with a special focus on SMEs, retail investors, capital raising, etc. Our endeavour would be to connect the Indian capital markets more closely with the real economy. 

We are keen to come out with products and services that suit the varied needs of retail and institutional investors. Our index, the SX40 has been designed in line with global best practices and index design principles offering better economic utility to a wide array of participant interests including that of retail and institutional investors.

We will create useful linkages extending beyond the current few centres in which stock market activity is currently taking place in a manner that all the 600 odd districts of the country will have easy access to financial products traded on our exchange with a particular focus on promoting fixed income products in the rural and semi-urban areas. We will strive to fulfil the responsibility of an exchange to unleash the latent potential of Indian capital markets. We will harness the latest developments in technology and communications to unleash the market potential. 

Product Innovation − will it serve the purpose, especially for retail investors? 

We will focus on products and innovation in segments that would closely connect the retail and institutional investors. Innovation is essential to provide retail investors the safety of competing investment alternatives and returns that are incomparable.

What are the measures required to improve the risk containment and how do you think we can avoid flash crashes. Also the rise in highly automated trading (Algo trading) provides a distinct advantage to the institutional traders, how do retail investors compete in such environment? 

Technology serves the purpose of enhancing market quality, not only in terms of speed but also in terms of its efficiency, integrity and transparency. Any disruption to the above parameters caused by technical glitches thus result in serious distrust among investors. 

We work closely with our technology providers to ensure robustness of our systems and our thorough testing regime puts the technology to test in all types of real time conditions which provide us the confidence that what happened in the other markets is unlikely to happen on our platform. There have been many checks and balances that we have put on our technology system which prevents such potential risks. 
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About co-location, the issue here is not about whether it is good or bad. The question is are we ready for it and do we need it at this juncture? Co-location differentiates between big and smalltraders and investors. The major objective of markets has been to provide all with equal and fair access to platforms in the process price discovery. 

Priorities of a developing market like India are different where the fundamental focus of any exchange is not about promoting delta trading but towards strengthening the critical aspect of capital market formation and broad basing of investor population. Developed world moves to co-location and HFT post wide penetration of the market and development of all segments of capital market whereas if we try to jump the gun then we will not be able to focus on broad basing investors who feel disadvantaged against institutional and technology giants. 

SEBI has started taking measures to calibrate these developments and we think these are healthy signs. Thus, blindly aping technology models of exchanges in the West, which are still under review and assessment in their own countries, will not serve any developmental purpose in the Indian market. 

Consolidation seems to be the buzzword the world over as far as stock exchanges are concerned. Do you think this will happen in the Indian context too? Have you earmarked any acquisition targets at the regional level to take this forward? 

The recent trend of consolidation among exchanges will also happen in India but we are yet to enter into the listing stage which precedes this phase. First, India would have to develop a robust and broad-based market with complete range of products and services available globally and create a wide base of investors to make the markets more inclusive and sustainable. This would be followed by the efforts of the exchanges to discover their value in public markets. There are various business, environmental, policy and regulatory developments that lead to consolidation of the industry and we don’t foresee factors firming up in the Indian markets in the near future. 

Improved taxation regime is what will help develop market further. However we have been facing some problems on that front. There have been talks of the need to introduce CTT for quite some time now. What is your take on this?

Our view is that any tax on risk management products is cause of making such products inefficient for its true economic utility. So our view is that there should not be any tax on derivative transactions, may it be security or commodity or debt. STT was once imposed on debt market and the market came almost to a grinding halt until the tax was removed. Therefore there is no tax on any derivatives transaction globally. 

Industry representatives, including several apex chambers and exchanges, have opined that securities transaction tax (STT) on equities led volumes to migrate from equity markets to equity options due to lower incidence of STT on options contracts as STT is paid on premium of options and not on the notional value of options contract. In recent times, CII, CPAI, Assocham and Exchanges have made representation to the finance ministry for not imposing Commodities Transaction Tax. They have argued that equity and commodity trading cannot be compared as while equity trade provides for capital appreci- ation, commodity exchanges help stakeholders to hedge risk against adverse price movements.
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It has been there for more than a centry and is the strongest pillar of the Indian capital markets. The BSE has evolved well and is now poised to take the next big leap under the leadership of Ashishkumar Chauhan its MD & CEO. Here is what he has to say about the way ahead

Ashishkumar Chauhan, MD & CEO, BSE

In your opinion, why is the Indian capital market attractive? 

India as an investment destination has a several advantages over most emerging and other markets. These broadly are into three areas; its growth prospects, the structure of its capital markets and the overall investment climate which is further strengthened by a supportive regulatory framework. 

What does the Indian market have on offer to investors in the present context? 

The Indian stock markets have representations from a wide variety of sectors, against what most emerging markets have on offer. This allows for the Indian stock markets to be a better gauge for the Indian economy and thereby provide a fairly transparent instrument for investors. The Indian markets have a strong and robust structure, with an able and competent regulatory body, SEBI, supervising them. Investors can feel confident that Indian markets will not subscribe to wild speculatory swings thereby hurting the liquidity in the markets.

How do you look at the low investor base that invests in equity in India? 

We expect the domestic investor population investing in capital markets directly or indirectly to grow from about 22 million (less than 2% of India’s population) to more than 250 million (about 20%) by 2030 owing to the demographics, expected growth of the economy, lower cost of transaction services, reach of stock market intermediaries, better financial literacy etc,. This is expected to help capital formation in addition to help job creation in this vast and fast growing economy. 

What is your take on the regulatory framework of Indian markets? 

India scores high on the financial stability front with a robust and ever evolving regulatory framework. SEBI, has been a progressive regulator with primary functions of regulation and development of capital markets in the country for quite a long time now. An active Ministry of Finance, has been an added pillar of strength. India is blessed with an independent Central Bank in the form of the RBI, which has the critical responsibility of ensuring financial stability. 

What can we expect from the BSE in 2013?

BSE will continue to remain the market leader in terms of product development and introduction. It is the lowest cost trading destination for investors in the country and will continue to improve its system capability to bring the Exchange in the top 10 percentile of the World Exchanges over the next one year.

It has been working on many innovative products in the Equity as well as Derivatives Segment and other products which are hugely popular and highly traded in the developed markets. It remains committed to providing investors with the largest basket of securities across segments, to trade on. 
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What benefits according to you accrue to investors who trade and settle through the BSE? 

BSE is very conducive to investors for trading, clearing and settling of trades. Automated and anonymous screen based trading had been launched way back when the markets were transforming themselves. We have one of the fastest and most scalable trading systems in the world. The Straight Through Processing (STP) from any part in the world is another feature which makes our trading systems very robust especially for the FIIs. The biggest advantage that we offer is the availability of a huge liquid market with close to 5200 stocks listed on the Exchange, making it the largest exchange in terms of number of companies listed in the world.

How well are you risk management systems?

Real time risk management and settlement guarantee through a Central Counter Party (CCP) is what makes us reasonably strong a player. In fact, we have had no settlement default in more than a decade now. 

How do you see the markets evolving going forward?

A large domestic investor base is growing rapidly.

Tell us something about the vibrancy of the BSE.

On the BSE you have trading, clearing and settlement available in equity, corporate debt, government debt, equity derivatives, MFs, IPOs, etc. This will give you an idea of depth that we offer. On the micro level, many features go to make BSE the best. Delivery-based stock futures and options are available to investors for hedging. We are the World’s 3rd largest Index options market (Source: WFE – July 2012 Statistics) and the 3rd largest stock market by number of transactions (Source: WFE – July 2012 Statistics). With a Market Capitalisation of USD 1.2 Trillion, the BSE is India’s largest and world’s 9th largest stock market by market capitalisation (Source: WFE – November 2012 Statistics). All this makes us the most transparent, fair, efficient, cost effective and regulatory adherent marketplace.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR