Inclusion is imperative for wholesome development of India’s Capital Market: Joseph Massey

Trading in Equity and Equity futures and Options is set to become more attractive on MCX-SX, India’s new stock Exchange, with the Exchange introducing a liquidity enhancement scheme with effect from March 6, 2013to encourage genuine participation of investors. Mr. Joseph Massey, MD&CEO of MCX-SX, was in town on Tuesday to attend a road-show on the liquidity scheme. He spoke in details about the Scheme and plans of MCX-SX going ahead.

Excerpts from the interview:

Q 1. Who can participate in the MCX-SX Liquidity Enhancement Scheme?  Which are the market segments that have been included in the scheme?

Ans: This is scheme is open-to all and is meant to benefit each and every participant across various segments – whether it is a retail participant, a jobber, arbitrageur, dealer  or market maker.  The Liquidity scheme is introduced in Equity and Equity Derivatives segment. MCX-SX is the first national exchange to introduce to be introducing a liquidity enhancement scheme in Cash Market.

Q2.  When will be the scheme launched? How many securities have been included?

Ans:The scheme will come into effect form March 6, 2013. All securities available on MCX-SX are included in the scheme. In addition, there will be market making on 50 stock futures.

Q3. What is the objective of the liquidity scheme?

Ans:Inclusion will be imperative for developing India’s Capital Market. MCX-SX is stressing on Growth and Inclusion to contribute towards market development. This philosophy is also reflected in the Liquidity scheme which benefits all participants, unlike other liquidity schemes that exclude a large portion of the market. Whether it is a retail investor, or an institutional client, a jobber, arbitrageur or a market maker -- MCX-SX bonanza is for each and every participant.

Q4. How will you ensure that the incentives reach every participant, especially the retail participant and the money is not pocketed by a few participants?

Ans: The Exchange has advised all its members to provide incentives to retail clients. Moreover, market makers get higher incentives to ensure continuous and genuine liquidity, which will not be possible if he doesn’t pass on the benefit to genuine clients. Jobbers get an additional advantage as there are no Immediate or Cancelled Orders (IOC) on Algorithmic trades.  This creates a level playing field and rewards all investors and not just a chosen few with deep pockets who use sophisticated software programmes for trading. We have waived off transaction fee on all passive orders, besides paying an additional incentive amount of 50% of the transaction fee to encourage genuine trades. 

Q5. Can you elaborate about some of the monetary benefits being provided to members and market makers as part of the scheme?

Ans:  As I mentioned earlier, Market Makers are incentivized at a higher rate for contributing to genuine participation and ensuring continuous liquidity.   If a Market Maker successfully fulfills his obligation and creates liquidity in 40 securities for more than 90% of the specified trading time on all days in a month, he gets a special incentive of Rs 50 lakh. There are huge rewards for Proprietary Traders and Arbitrageurs. Top 5 members get a monthly reward of Rs 25 lac, Rs 18 lac, Rs 11 lac, Rs 7.5 lac and Rs 5 lac, respectively.

Q6. How will MCX-SX create a difference in the Indian Capital Market?

Ans:  Exchanges should play a role in channelising domestic savings into nation building. For all all-round development of markets, we need to bring all asset classes to investors, which include forex, commodities, bonds etc. We will also superior service standards, lower costs, better investor base, and a widespread reach. We have already introduced a cost optimisation in transaction costs, deposit and membership fee structure of the exchange. The incentives offered the liquidity enhancement scheme will act like a catalyst and further lower the trading cost on MCX-SX.