The parent of the New York Stock Exchange and three other investors said last week that they will each buy 5 percent, $115 million equity stakes in the National Stock Exchange (NSE) of India, that country’s largest exchange and the third-largest in the world in terms of equity trades. The agreement came on the heels of a disclosure that the Singapore Exchange (SGX) was negotiating to invest in the Bombay Stock Exchange (BSE).
In the context of other international exchange developments–notably NYSE Group’s pending acquisition of Euronext, the Nasdaq Stock Market’s pursuit of the London Stock Exchange, and efforts by NYSE, Nasdaq, the Chicago Mercantile Exchange and others to forge alliances in Asia–the Indian moves indicate that the global capital markets’ already strong consolidation momentum is poised to spread and accelerate.
India is seen as particularly ripe for consolidation. In a report last month, consulting firm Accenture said that India and China together were becoming “the most important growth hubs for the securities business in the near term.” In an interview with Securities Industry News, Accenture partner William Cline predicted that India’s fragmented network of 22 exchanges led by NSE and Bombay would first experience some domestic “roll-ups” before larger-scale consolidation would take hold.
Indian markets have been “very closed,” observed analyst Larry Tabb, founder and CEO of Tabb Group in Westborough, Mass. “It is difficult to even invest in Indian-listed companies. The settlement and clearance process is also very convoluted, with two different exchanges trading and settling the same securities.” Growth and liquidity in the Indian markets could “spell profits for an exchange that can come in and make the Indian capital markets more efficient,” he said.
Ownership Limits
Under Indian regulations, a single foreign investor can own no more than 5 percent of an exchange. However, the total foreign ownership cap was raised to 49 percent under rules issued by the Reserve Bank of India on Dec. 22; foreign direct investment is capped at 26 percent, and foreign institutional investment at 23 percent.
The NYSE deal totaled 20 percent through a consortium that also included Goldman Sachs Group-where NYSE chief executive John Thain was president and chief operating officer-private equity firm General Atlantic, and the Softbank Asian Infrastructure Fund of Japanese technology investment company Softbank Corp. The transaction is expected to close this quarter.
In a Jan. 10 statement, NYSE’s Thain said that NSE “shares our global vision” and that its partnership with the transcontinental NYSE Euronext “will extend our global reach, strengthen relationships with customers and advance our competitive position in India and throughout the region.” The New York exchange said it lists ten Indian companies with total global market capitalization of $76 billion.
Ravi Narain, managing director and CEO of the demutualized and screen-based NSE, which has headquarters in Bombay and branches in five cities, also emphasized the global implications of the deal. “In a rapidly integrating world of financial markets,” he said, “this timely partnership brings together the strengths of institutions from North America, Europe and Asia. This alliance marks a significant milestone for NSE in developing a place for itself in the emerging global scenario.”
Singapore’s Reach
Magdalyn Liew, spokesperson for Singapore’s SGX, confirmed that the exchange is currently in talks with Bombay’s BSE. SGX released a statement: “As we have stated before, SGX is open to work with like-minded exchanges that will enhance our marketplace. In this context, we are in preliminary discussions with BSE on a number of possibilities.”
“This makes a great deal of sense just as a business deal,” said Frasier Howie, a Singapore-based analyst and co-author of “Privatizing China: The Stock Markets and Their Role in Corporate Reform.” Although the Bombay exchange is India’s oldest, said Howie, NSE garners the bulk of listings. Partnering with a foreign exchange could help BSE “in terms of gaining some know-how and getting international exposure,” Howie said.
For its part, SGX takes a global view; it aggressively promotes itself as a listing venue for foreign companies, last year it launched the Joint Asian Derivatives Exchange with Chicago-based CBOT Holdings, and it has long been eyeing China and India for their growth potential. Howie said that Singapore faces stiff competition in China against the Hong Kong Stock Exchange, but “Hong Kong doesn’t have that India connection.”
A tie-up between Singapore and Bombay could lead to stocks being co-listed on both exchanges, said Yumiko Manchu, an analyst in Tokyo with research firm Celent. “A lot of companies in India are listed on the Singapore Exchange,” Manchu said. “It would be a good opportunity for India to have those stocks back on home ground.”
The Indian action reverberated elsewhere in Asia. Japanese press reports said that some kind of transaction was imminent between NYSE and the Tokyo Stock Exchange (TSE)–not for the first time, and again prompting an official denial from TSE. Manchu sees pressure building. “The Tokyo exchange could be sort of left behind,” she said. “Other exchanges … may start looking at doing something similar.”
In Australia, shares of the Australian Stock Exchange jumped 4.5 percent on Jan. 11 on rumors that NYSE was buying its shares.
Lauren Hilgers contributed to this report.
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Article originally appeared in Securities Industry News, which has since closed down.
