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At a time when currency segment is undergoing strict trading curbs, ensuring growth is a big challenge for MCX Stock Exchange. And for its new chief, getting back equity investors would be a tough task.
MCX Stock Exchange (MCX-SX)'s new managing director and chief executive Saurabh Sarkar (bottom left) is set to drive it with renewed thrust. In an interview with Rajesh Bhayani, he says his priorities include completion of a rights issue, achieving break-even within a year and introducing market-friendly products. Excerpts:
With the equity segment not faring well and the currency segment reeling under stringent trading curbs, how will you ensure growth and viability for an exchange that doesn't have any anchor investors now?
First, let me clarify as a stock exchange, MCX-SX has a unique ownership pattern---it is 80 per cent owned by government-owned banks and financial institutions and is, therefore, the most demutualised among existing exchanges.
With the Indian currency now stable, we are expecting the trading curbs imposed by the Reserve Bank of India, which have resulted in currency segment volumes across exchanges falling sharply, to be reversed. In that case, we will gain lost volumes and income from that segment will take care of expenses in other segments.
Interest rate futures are doing well on our platform and we are already on the number two slot.
The equity segment has not been doing well and we are a very new player. Since equity is an investment product, bringing new investors is a challenge for the segment, as a lot of people have lost heavily in the past. So, instead of short-term fixes, we need to have a long-term focus on meeting the requirement of capital-seeking issuers and return-seeking investors. As an exchange, we will do our best to innovate and improve services.
However glamorous the equity segment may be, the exchange has to serve many purposes. Therefore, its strength should be judged from the segments in which it is efficient.
Do you have new products in mind?
Yes. For attracting equity investors, hybrid instruments such as convertible debentures seem interesting. It could be the one to come back and we can work towards that. Interest rate swaps is another; subject to regulatory approval, it has the potential to become the most successful of all products.
What are your targets and how will you meet those?
Those involved with exchanges have many responsibilities; they should not be larger than life. They should be realistic. Keeping that in mind, we plan to complete a rights issue by the end of next month. I want to see the exchange breaking even by the end of next financial year. Achieving better liquidity in the segments in which we operate is the third priority. The rest will follow.
When the exchange started operations in the equity segment, it saw record applications. After a year, it lost money in payments to members, who were to be refunded in a year if high volumes were achieved. How will you soothe those members, as they will bring in liquidity?
That is where my challenge lies. I plan to meet and listen to all our members and see what best can be done. We could even consider extending the earlier offers given to them; of course, this will be subject to board approval.
Earlier, you had said the exchange was reviewing the technology supply contract (with the original promoter Financial Technologies, or FT). So far, the exchange hasn't sent any formal communication on this.
Well, by itself, a long-term contract isn't bad. However, what needs to be reviewed is what we are paying. Committing the exchange for a longer-term, high-cost contract in an environment in which realisations are falling isn't smart. Technology costs keep falling, not rising!
We are discussing costs with all our vendors, without exception. So far, I notice goodwill for the exchange and a willingness to cooperate among all our service providers. I am committed to reducing costs and turn around the operations of this exchange at the earliest.
Whatever has to be done will be done. What works in our favour is the market has several reasonable cost options to suit every requirement of ours.
The exchange has transferred the original promoters FT and MCX to public shareholders. MCX has already indicated it could exit its ventures. Could this be the beginning of a longer dispute? MCX-SX is housed in MCX premises and uses the MCX brand.
I do not see any possible dispute. Both the promoters, FT & MCX, have been re-classified to public shareholding. Besides, we are already in the process of evaluating a change in the identity, as well as shifting closer to the offices of banks and other financial institutions for operational efficiency. Though this might take some time, the process of evaluation has already commenced.
