USE to enter equity trading, but won't antagonise BSE: CEO

Axis Bank BSE | NSE 31/05/12 Are Mutual Funds betting on Axis Bank? Other Stocks in this news Federal Bank | HDFC Bank | Jammu and Kashmir Bank | Yes Bank | ICICI Bank |

The country's newest bourse United Stock Exchange, currently offering currency futures trading only, is looking to soon enter new segments such as equities and interest rate futures to expand its business and profits.

The move could put USE in direct competition with Bombay Stock Exchange, but its chief said that the bourse would make sure not to rub shoulders with its larger rival BSE, which also happens to be its largest shareholder.

"Yes, it is true that we have to enter more segments of trading, which is in fact a natural business progression," USE Managing Director and CEO TS Narayanasami told PTI.

He, however, added that USE was yet to approach its board with any such plans. Currently, BSE and NSE are the only two major national stock exchanges providing equity trading, while two others,  USE and MCX-SX are only present in currency futures market.

BSE withdrew itself from currency futures in favour of USE, while NSE is present in virtually all the segments. The issue of competition in stock exchange arena has become a hot topic of debate and the Competition Commission of India recently slapped a Rs 50 crore penalty on NSE after finding it guilty of abusing its dominant market position.

In its order, which followed a probe conducted by it pursuant to a complaint filed by MCX-SX, the competition watchdog also asked the NSE to immediately stop subsidising its products in currency derivatives market and start imposing a transaction fee.

Welcoming the CCI move, Narayanasami said there has to be a revenue model for any business and it was good that some transaction fees are charged, especially for those entities which have only single-source revenues. Noting that USE needs to diversify, he said: "We will ensure that there is no conflict of interest with the Bombay Stock Exchange, as and when we decide to enter new segments.

"After all the BSE is our largest shareholder with 15% stake and we have no plans to antagonise them," he added. He also noted that it was "a very delicate issue, since BSE had shut their currency business when they picked up stake in us. We have to respect that decision".

Narayansami's comments come in the midst of rumours that BSE might sell its 15% stake in USE, following which the two would compete in all the market segments.

Narayanasami also scotched rumours about any plans to leave USE and said that there was "no basis for such reports. They are all sheer rumors. I am very much with the exchange and have great plans for it as of now.

Asked whether as the CEO he supports USE entering the equity space, Narayanasami said, "yes as a natural course of our business, but everything depends on the board decision". On whether BSE could sell its stake, he said: "never, not at all."

When contacted, a senior BSE official also said that the premier exchange had no plans to exit USE.

"They (USE) have given us tremendous return on our investment. Why should we quit a venture that is giving us high returns and also has higher potential to deliver more?" said the BSE official, who did not want to be identified.

On the business strategy for USE as it completes the first year of operations in mid-September, Narayanasami said, "over the past 10 months we have consolidated our position in the market with our volume share touching 26%. My target is clutch at 30% market share by September".

As on June-end, USE had 21.65% of the volume, while NSE had 42.75 per cent and MCX 35.06%, according to the data available on their websites.

This is a major jump for USE from March, when it had just
10.40% of the market, while MCX-SX was on the top with
46.26%. USE had recorded largest number of contracts on the first
day of trading with a 52% market share. It operates on
four currency pairs against the rupee -- the US dollar, the
euro, the pound and the yen.

On the new business areas that the company is looking to enter, USE's president for marketing and business development Saurabh Arora said, they will approach the market regulator Sebi to seek permission for entering interest rate futures segment.

"We are filing for application for interest futures shortly. We have already have the board approval for this," Arora told PTI.

Narayanasami said that as the market matures, USE intends to launch other currency pairs and it already has the Sebi approval to commence currency options.

While BSE is the largest investor in USE with 15% stake, its other shareholders include leading banks like Axis Bank , Federal Bank , HDFC Bank , J&K Bank , Yes Bank , ICICI Bank , Standard Chartered and corporate entities like Jaypee Capital, MMTC and Indian Potash.