Delhi Stock Exchange: All suited up and (hopefully) somewhere to go
9 November 2011
The news that the Delhi Stock Exchange (DSE) might buy a trading platform developed by MilleniumIT (owned by LSE) could be the sign of great things to come for the DSE, or it could be just another headline about the opportunities for growth in an emerging market. The DSE, while being one of only three national equity exchanges in India, has not been operational for some time. The efforts to revive it have been going on for a couple of years and it is expected that it would be able to re-start its operations soon. Until recently, the best candidate to provide competition in the equity market to the incumbent National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) was MCX-SX, an exchange promoted by MCX, the largest commodity exchange in India and Financial Technologies, a capital markets technology and infrastructure provider. But MCX-SX got caught up in regulations that stipulated the reduction of ownership by its promoters, something they failed to do according to the capital market regulator, SEBI, and the courts. So from being a strong candidate to take on the might of NSE, MCX-SX is still cooling its heels on the sidelines. Getting back to the DSE, the use of one of the fastest trading platforms in the world (LSE claims it is the fastest) could be a great advantage. The only problem is it is still not clear what space the exchange would be able to occupy in the Indian markets and how it would utilize such a platform. It's a little bit like owning a Ferrari and not having a decent road to drive it on. DSE is being positioned as an ideal exchange for small and medium enterprises (SME). The issue here is that both NSE and BSE are in the process of starting their own SME exchanges, which would mean there would be tough competition for DSE. It would be critical for the exchange to ensure that there is sufficient business and liquidity in the market, otherwise the speed of the platform would matter little. LSE might have the fastest platform for an exchange, but that does not prevent it from losing ground to Chi-X in the UK market. Unlike LSE, DSE is going to compete from a standing start in the Indian market. So there are a number of issues it would need to address before the speed of its platform can have a bearing on its performance in the Indian market. But from the point of view of an average investor in the Indian market, that is not something they need to worry about. The very possibility of more competition for the incumbent exchanges is great news. When it also means that they might have access to a globally competitive platform, it is news that they can certainly savor for a while.