Imagine a courtroom, a place where people go to seek justice. You’ve filed a case, hoping for a fair judgment. But what if you find out that the judge deciding your case is related to the person you’re fighting against?
Would you still feel confident about getting a fair trial? This raises an important question: can someone truly be unbiased when they have personal ties to one side?
Now, think about the Metropolitan Stock Exchange of India (MSEI). Some of India’s biggest stockbrokers like Zerodha, Groww, Share India, and Securocorp Securities have bought stakes in this exchange.
What’s more troubling is that an exchange isn’t just a platform for trading – it’s also the second level of regulatory oversight after SEBI. It’s where retail traders can raise concerns or file complaints against brokers or trading apps in cases of fraud or malpractice.
But now, when brokers own a part of the exchange, how can retail traders expect justice? Doesn’t this create a clear conflict of interest?
Apart from this, the exchange got approval from SEBI to introduce its index SX40 for weekly expiry every Friday from January 01, 2025, onwards.
So, on the one hand, SEBI limited the number of expires in the stock market because of the increasing percentage of retail traders losing money, and on the other hand, it approved another exchange to introduce options.
Doesn’t it make it difficult for a retail trader to understand what SEBI wants?
Understanding the Shareholding Pattern in MSEI
Let’s first go into the details of the background of the Metropolitan Stock Exchange of India (MSEI).
This exchange was set in the year 2008 under the regulation of SEBI & RBI. Later in the year 2013, the exchange launched the capital market segment F&O by introducing the index SX40.
Earlier India’s leading investors, the late Mr. Rakesh Jhunjuhunwala and Mr. Radhakrishan Damani had their stake holding in the exchange. Mr. Damani continues to hold a 0.89% stake even today.
Other than this, the exchange released an issue to raise ₹238 crores for which 119 crore shares are allotted to leading stock brokers s
On this basis, the total valuation of the issue is around ₹1200 crores. Brokers purchased shares at the face value of ₹1 and a premium of ₹1.
The percentage share of each stock broker is still not disclosed but considering Share India got an allotment of 29.75 shares worth ₹59.50 crores. Based on this the company acquires around 4.95% of stakeholdings in the exchange.
Other than these stockbrokers other major Metropolitan Stock Exchange shareholders are Multi-Commodity Exchange (6.9%), and NRI Investor Siddharth Balachandran (4.9%).
Major public-sector banks like Union Bank of India, State Bank of India, and Canara Bank also hold stakes in the exchange, along with private players like HDFC and UCO Bank.
The involvement of these institutional players adds credibility to the Metropolitan Stock Exchange but also raises concerns about concentrated ownership.
How This Will Lead to the Conflict of Interest
Stock exchanges are the second line of regulatory oversight after SEBI. They are meant to ensure fair play, resolve disputes, and address complaints raised by retail traders.
However, with stockbrokers now holding significant stakes in the exchange, questions about impartiality and fairness arise. Can brokers, who profit from traders’ transactions, effectively regulate themselves?
Take Zerodha as an example. When Zerodha acquired a stake in BSE, the move brought liquidity to the market. Now, a similar outcome is expected in the case of MSE, where broker involvement will likely bring more liquidity, benefitting the exchange and its stakeholders.
However, retail traders are left wondering: what’s in it for them?
How this Listing Impacts the Market?
Following the announcement of MSE’s capital raising and the introduction of the SX40, the exchange’s share price soared from around ₹4 to ₹7.60 in a single day.
Meanwhile, Share India, one of the Metropolitan Stock Exchange shareholders, saw its stock jump from ₹309.3 to ₹327.5 within the same timeframe.
For brokers who purchased MSEI shares at ₹2, these rapid price movements lead to huge gains.
For retail investors, however, the implications are less clear.
The Bigger Picture
While the introduction of SX40 could inject much-needed vitality into MSE, the overarching question remains: does this move genuinely benefit retail traders?
SEBI has shown concern for retail traders’ losses by limiting weekly expiries in the past. But now, by approving MSE’s weekly expiry, it sends mixed signals.
Does SEBI prioritize retail traders’ interests, or are these measures designed to favor big players in the market?
In this whole approval and introduction of the index for options trading, Metropolitan Stock Exchange shareholders stand to gain from increased trading activity and liquidity, but the risks to small investors remain.
SEBI’s primary mandate is to protect retail investors and ensure market integrity.
Allowing brokers like Groww having a major client base and Zerodha with the highest volume in trading, to hold significant stakes in an exchange appears to undermine this mission, potentially making retail traders think twice regarding the public trust in the fairness of the market.
Conclusion
As MSE embarks on this new chapter with the SX40, SEBI, and other stakeholders must address the apparent conflict of interest.
Transparent mechanisms must be established to ensure that the exchange operates impartially, prioritizing the welfare of retail traders over the profits of its stakeholders.
The success of MSE’s SX40 will depend not only on its ability to attract volumes but also on its commitment to maintaining a fair and equitable trading environment. After all, trust is the cornerstone of any market, and without it, even the most innovative initiatives are bound to fail.
