E-Paper
War of the bourses raises disturbing questions
Last week, the management of India’s two stock exchanges contrived to get a lot of egg on their faces in a matter that really should have been handled quite smoothly. I’m referring to the drama of exchanges extending their starting hours, getting into a kindergarten me-too fight, and then rolling it back in a welter of protests.
Last week, the management of India’s two stock exchanges contrived to get a lot of egg on their faces in a matter that really should have been handled quite smoothly. I’m referring to the drama of exchanges extending their starting hours, getting into a kindergarten me-too fight, and then rolling it back in a welter of protests.
First, BSE advanced the start of its trading day by 7 minutes, then NSE mounted a strong reply by advancing it by 55 minutes. BSE was quick to match it. When the competitive rush subsided and the adrenaline stopped coursing through the veins of the two stock exchanges the next day, they both tamely went back to start at 9.55 a.m — at least for a while.
The episode raised key questions about the fundamental nature of the bourses. As things have evolved, the stock exchanges are normal for-profit corporations. The NSE was always structured like that and the BSE became so in 2007. The two exchanges, and others in future, are competing for customers and for profits. They grow their business by expanding trading as an activity and becoming the preferred trading platform.
The motive behind the competitive time-table modifications was to capture more of the trading market, ostensibly business originating abroad. However, this episode has led to a lot of people questioning on how well the exchanges are interested in balancing their role of maximising their shareholders’ value with their role responsible institutions. At the bottom of the equity pyramid lies the individual who is investing and trading.
Are the bourses right in overdoing a push to aid individual speculators?
The culture of stock investing in India is largely about ultra short-term trading, and increasingly in derivatives which, even in their most basic form, are only hazily understood by those trading in them. We have the highest volume of derivative trades in the world! It seems our entire eco-system is positively hostile to anything but punting. Now, I do know all the arguments about liquidity creation and value discovery through short-horizon trading. But all that just cannot be in aid of yet more trading. I am not sure where this is all going.
