Recently, the Metropolitan Stock Exchange of India (MSEI) turned a talking point among market participants. The reason was a fresh infusion of ₹238 crore from a consortium of investors, big players in the same league. The fund infusers included Billionbrains Garage Ventures (parent company of Groww), Rainmatter Investments (owned by discount brokerage Zerodha), Securocorp Securities India and Share India Securities. They will be allotted 29.75 crore shares each at ₹2.

The exchange has called for an extra-ordinary general meeting of shareholders January 18, 2025 (Saturday) to ratify the allotment.

Prominent investors such as DMart founder Radhakishan Damani (0.31 per cent), Enam’s co-founder Nemish Shah (2.02 per cent), and several major banks, including SBI, Bank of Baroda, Punjab National Bank, HDFC Bank, Axis Bank and Union Bank of India (all put together 0.36 per cent), are existing shareholders in MSEI. Retail shareholders (shares worth up to ₹2 lakh) hold 29.66 per cent and HNIs (with shares worth above ₹2 lakh) hold 29.17 per cent.

MSEI, formerly known as MCX-SX, was founded by Jignesh Shah in 2008, then seen as a potential threat to the two dominant stock exchanges, the National Stock Exchange and the BSE. However, its fortunes took a hit after the ₹5,600-crore National Spot Exchange scam, which forced Shah to quit the exchange.

The exchange has been struggling financially. For the year ended March 31, 2024, it reported a consolidated loss of ₹48.74 crore, compared to a loss of ₹18.67 crore in the previous year. Revenue from operations also declined to ₹21.04 crore (₹54.65 crore).

Till 2002, the Indian securities market was vibrant, with nearly two dozen operational stock exchanges that included the Delhi Stock Exchange, Calcutta Stock Exchange, Madras Stock Exchange, OTCEI and the Ahmedabad Stock Exchange. Most of them were powerful regional players handling nearly 10,000 listed companies. But consolidation and regulatory changes have since reduced the number.

Window of opportunity

The fund infusion is happening at a time when SEBI’s new restrictions on the derivatives segment are curbing volumes at MSEI’s large rivals. Among various restrictions, the most important one was directive on the weekly index contracts from MSEI perspective. SEBI had directed the exchanges to offer weekly contracts only on one index. While the NSE discontinued weekly contracts on Bank Nifty (and retained Nifty), the BSE nixed its Bankex contracts and retained weekly expiry on BSE Sensex.

Starting from November 2024, both the NSE and BSE are making significant changes to their weekly derivatives contracts for futures and options (F&O) trading. Only one weekly index derivatives contract will be available per exchange.

This throws open a window of opportunity for MSEI to launch index products that could attract derivative traders to the bourse. MSEI could also see some rise in the derivatives segment turnover as the dynamics of equity derivatives shift.

Markets regulator SEBI, was perhaps keen to end the dominance of these exchanges, as it does not want the bourses to attain “too big to fail” status. In fact, it had relaxed ownership norms (allowing individuals to hold up to 15 per cent).

MSEI has said that it intends to use the funds to strengthen technological infrastructure, expand its market presence and operations, improve liquidity and trading volumes and launch new products and services tailored to Indian and global investors.

It will be interesting to see whether MSEI takes the right steps to revive its fortunes.