As NSE celebrates completion of 25 years as a stock exchange, it has much to feel proud about. The exchange transformed Indian equity market with its technology-driven trading platform, helping take equity investing to far reaches of the country. Its state-of-art infrastructure and near trouble-free trading, clearing and settlement processes, place it among the best globally. Being the pioneer in electronic, screen-based trading, it could quickly garner market share by roping in tech-savvy brokers and sub-brokers, who were glad to move to a more transparent and user-friendly trading platform. Its open platform eliminated the information arbitrage enjoyed hitherto by ‘insiders’ and its easy-to-access trading platform help to spread the equity culture across the country. With the launch of futures and options trading in early 2000, it helped Indian markets break free of the opaque and scam-ridden badla system for trading equity forwards. It currently enjoys 90 per cent share in the equity capital market segment and near monopoly in the equity derivative segment. The exchange has also been among the first to launch platforms for currency derivatives, exchange traded funds, bonds, government securities and stocks of start-ups and SME companies. With its foray into commodity derivative trading, the NSE is well-poised to emerge as a key player in this segment as well.
While there is no disputing that Indian investors, on the whole, have gained immensely , a sharpened focus on retail investors will help greatly over the next 25 years. Over the last decade and half, the exchange appears to have turned its attention to aggressively growing its business and becoming the market leader in all segments, rather than concentrate on investors’ well-being. The exchange has allowed the equity derivative segment to burgeon to such an extent that the traded turnover here is more than 10 times the turnover in the cash segment. Within the cash segment too, speculative volume accounts for more than 70 per cent. The portion of the exchange that is directly relevant for capital creation is stagnating while speculation is thriving. The predatory pricing adopted by the exchange to garner market share in various segments, allowing the growth of algo trading and giving permission to intermediaries to place colocation servers next to the exchange server are some of the instances where the exchange appeared more concerned about its bottom-line than protecting the small investor.
There are other pain-points that need to be addressed. The NSE needs to bolster its surveillance mechanism further to plug stock price manipulations that erode the credibility of Indian markets. India’s largest exchange should also take the lead in ensuring a pipeline of good quality issues, by helping more SMEs as well as India’s booming start-ups to graduate into the equity market.