Metropolitan Stock Exchange: Why Investors Are Betting On Another Revival

Metropolitan Stock Exchange of India is preparing for another attempt at revival, this time with backing from Groww’s parent company and Zerodha’s Rainmatter. According to disclosures made by the exchange, MSEI is aiming to raise Rs 238 crore through this fundraise.

As per five industry experts NDTV Profit spoke to, new investors are finding the exchange more lucrative as the exchange plans to relaunch its flagship index, and start futures and options contracts. 

In an emailed response to NDTV Profit's queries, MSEI said that it intends to focus on building liquidity in equity segment, relaunch SX40 index and F&O contracts on the benchmark index and work on a differentiated product. However, it did not clarify which product it was working on.

Currently, the exchange has close to 2,000 companies available for trading on its platform, including close to 265 listed firms.

To be sure, MSEI is licensed to operate in equity, equity derivatives, currency derivatives and debt segments.

"The exchange had growing business in currency derivatives segment till RBI circular became applicable in May 2024. Now, the exchange is in the process of building liquidity in other segments," MSEI said in its statement.

As part of its curbs on F&O segment, SEBI recently introduced regulations limiting stock exchanges to one weekly options expiry, reducing trading opportunities on market leader NSE, especially for high-frequency instruments like Bank Nifty weekly options.

With these changes, traders have sought alternative platforms to continue similar trading strategies and MSEI is now positioned as an attractive alternative trading venue, as per Dr Narayani Ramachandran, Director & Professor of Finance at NMIMS Bengaluru campus.

The revival of this exchange could provide traders and investors with a third expiry day each week. However, this is contingent on receiving the necessary approvals from the regulator, which have not been confirmed yet.

Nevertheless, Profit was told by two industry experts that this could be possible at some point in the future.

While the exchange has existed since 2008, it had to revamp itself owing to a leadership change after the NSEL scam. Since then, several large institutions have invested in the exchange.

The list includes banks like Union Bank of India, State Bank of India, Bank of Baroda, Punjab National Bank, Indian Bank, Bank of India, Axis Bank Limited, Indian Overseas Bank, Canara Bank - Mumbai, HDFC Bank Ltd., and UCO Bank.

In a letter to SEBI in January 2022 that was highlighted in the regulator's 2023 order, MSEI outlined its bleak future prospects, including the possibility of closing down or merging with another exchange. The exchange had been reporting a decline in trading volumes since July 2021.

The exchange also struggled to implement new business initiatives or improve its overall performance. According to the letter, the net worth of MSEI had been continuously eroding, with a warning that if the exchange's net worth falls below Rs 100 crore, it would be required to shut down.

Following this, in the 2023 order, the SEBI flagged irregularities at MSEI. However, the observations as per SEBI order against MSE were closed by Securities Appellate Tribunal as it was ruled in the favour of the Exchange.

Another reason for the renewed investor interest could be to gain unlisted shares of the exchanges at a relatively cheaper valuation, two industry experts told NDTV Profit.

Investors likely believe Metropolitan will give a similar return as the NSE and BSE, and the investment may rise in value many times. In that scenario, even starting from a valuation of Rs 2 leaves a lot of headroom for growth, they said. 

Out of its investors, Share Capital announced an investment of Rs.59.5 crore in the MSEI. This is for the acquisition of 29.75 crore equity shares, constituting a 4.958% stake in MSE’s post-issue paid-up share capital. This would value MSEI at around Rs 1,200 crore. 

However, whether times have changed depends on whether the exchange launches a new segment or offers exclusive products not available on other exchanges, giving it a first-mover advantage, as per a former exchange official.