MUMBAI (Reuters) - The MCX-Stock Exchange has won approval from regulators to start trading equity products, potentially shaking up domestic stock markets dominated by the Bombay Stock Exchange and the National Stock Exchange.
The Securities and Exchange Board of India has allowed MCX-SX to trade equity, equity futures, interest rate futures and wholesale debt products.
The entry of MCX-SX comes at a time when India's two big stock markets prepare for initial public offerings after the regulator set long-awaited guidelines in April.
Trading volumes are widely expected to grow substantially in coming years, as the government pushes initiatives to bolster mutual fund and insurance investments, which have traditionally focused more on debt products.
"(The) country needs penetration and we will make our little contribution," MCX-SX chief executive Joseph Massey told a news conference on Wednesday.
MCX-SX started in 2008 with currency futures, just months after NSE's entry into the segment, the operator now has a market share of 43.6 percent, above the NSE's 39.4 percent.
The NSE will be tougher to top in equities. The provider of the Nifty index overtook the rival BSE, Asia's oldest bourse, in trading volumes by pushing aggressively into derivatives.
The NSE saw $35.9 trillion in shares traded in its exchange in June, compared with just $7.9 trillion at the BSE, according to World Federation of Exchanges data.
Those volumes still lag far behind the more retail-driven Chinese markets. Shanghai's stock exchange, for example, recorded $190.9 trillion worth of trades last month.
Analysts see room for growth: 31 percent of the 5 trillion rupees of assets under management in India are in equity-oriented investments, according to PricewaterhouseCoopers.
MCX-SX is controlled by the Multi Commodity Exchange of India(MCEI.NS), India's biggest commodity bourse after raising $135 million in an IPO earlier this year, and Financial Technologies India Ltd provides software for trading terminals.
MCX-SX and NSE have an acrimonious history and have exchanged public accusations over fees as well as on the technology provided by Financial Technologies India.
MCX-SX made inroads into currency futures with aggressive pricing and may do so again with equities, analysts said.
"It is always a Catch-22 situation for a new exchange to attract volumes, although MCX has done so well in past few years in commodity and currency markets," said Ambareesh Baliga, chief operating officer of Way2Wealth Brokers.
"In commodity and FX they had the first mover's advantage, whereas in equity they do not have that, so there might be some innovative schemes and better technology in offing for investors," he said.
As a condition of trading stocks, SEBI has required that Financial Technologies and MCX must sell 60 percent of their warrants in MCX-SX within 36 months. Both promoters must also cut their 10 percent combined equity stakeholding to 5 percent.
(Additional reporting by Sumeet Chatterjee, Subhadip Sircar and Swati Bhat; Editing by Mike Nesbit)