A new chapter has begun for India's two biggest stock exchanges.
One, the BSE, previously known as the Bombay Stock Exchange, is the world's largest bourse by number of traded companies. The second, the National Stock Exchange of India, or NSE, leads the country in terms of trading volume. Now, the former has changed the game by going public.
The BSE listed on the NSE on Feb. 3 at 1,085 rupees, a 35% premium on the initial public offering price. The IPO raised $188 million, making it the second-largest splash in the past six years.
The proceeds went to stakeholders who wanted to sell, including Singapore Exchange. Nevertheless, the market's response bodes well for the BSE's plans.
Ashishkumar Chauhan, the BSE's managing director and chief executive, told reporters before the IPO that the exchange "needs to work on increasing market share in some products," such as derivatives.
Founded in 1875 mainly by stockbrokers, the BSE has more than 5,800 listed companies. This accounts for one-fifth of all publicly traded companies in the Asia-Pacific region. The bourse's once-dominant position, however, was undermined by frequent strikes and delayed trading settlements.
The NSE was established in 1992 by the Indian government, banking institutions and professionals, to challenge the BSE's hegemony. Two years later, the new exchange became India's first to launch electronic screen-based trading. Quick adoption of new technology, coupled with a series of trading scandals at the BSE in the 1990s, bolstered the NSE's image as a cleaner, more transparent alternative.
Today, the NSE controls 85% of equity cash trading and 94% of equity derivatives in India, though its company count is far lower, at 1,847. The BSE, meanwhile, is saddled with dead weight due to a large number of illiquid stocks and its rather slow response to technological progress.
With its rival growing ever stronger, the BSE recognized an acute need to shake things up. One goal is to chip away at the NSE's virtual monopoly in derivatives. To court foreign investors, the BSE has set up the country's first international exchange, the India INX.
The exchange, which went live on Jan. 17, has a turnaround time of 4 microseconds and operates for 22 hours a day, allowing global investors and nonresident Indians to trade from anywhere. The initial plan is to focus on equity, currency and commodity derivatives. Depositary receipts and bonds will come later. Turnover is currently $53.92 million.
The BSE is also keen to attract small and medium-sized enterprises. Its SME platform, created in 2012, encourages smaller businesses to tap the primary market by offering simplified IPOs and increasing their visibility. About 165 companies are listed on the BSE SME Exchange, well ahead of the 60 on the NSE Emerge market.
Dipan Mehta, founder and chief executive of local brokerage Elixir Equities, said staking claims to new turf will be critical. "It is kind of a bloody battle," he said. Rather than fighting in the "red ocean," or the areas the NSE has conquered, Mehta suggested the BSE is better off heading for the "blue ocean."
The BSE has also sought to overcome its reputation as a technological laggard. In November, it introduced a data analytics system that uses artificial intelligence to mitigate the risks of market manipulation and rumors.
"There should not be much difference between these two now, in terms of market microstructure," said NR Bhanumurthy, a professor at the New Delhi-based National Institute of Public Finance and Policy.
NSE TO LIST Not to be outdone, the NSE is also expected to list this year. Insiders say the wheels will be set in motion soon, with the appointment of a new NSE chief executive and managing director. The quiet war between the two exchanges continues, perhaps to the advantage of India's underutilized capital market.
"Until now, [the stock exchanges] seem to have performed better by providing competition to each other," Bhanumurthy said. He added that after their IPOs, challenging each other will be important.