MSEI (Metropolitan Stock Exchange of India Limited), one of the many exchanges in India, provides its clients with multiple options for trading on the financial markets through its offerings of various financial instruments (e.g., equities, commodities and derivatives). Although MSEI does not match the size of NSE (National Stock Exchange of India) or BSE (Bombay Stock Exchange), MSEI has carved out its place in India’s financial market. The main goal of MSEI is to encourage investor participation in the stock markets by fostering a competitive trading environment; consequently, MSEI helps to improve accessibility to financial services by providing investors with an alternative trading venue. In addition to its goal of providing a competitive trading venue, MSEI has invested heavily in technology to create an efficient trading infrastructure (i.e., an environment that supports the needs of all participants, including retail/institutional investors, brokers and traders).
Key Components of MSEI Business Model
1. Revenue from Trading Activity
MSEI is primarily a revenue-generating organization based on the trading activities of its platform. It generates revenue through an execution fee charged on each trade completed via the Metropolitan Stock Exchange of India trading system. The trade fee is usually applied to both parties involved in the transaction (buyer and seller) and typically calculated as a percentage of the total amount of the transaction being executed.
MSEI allows for various trading methods, including:
- Equity Market: MSEI enables you to purchase and sell shares of publicly listed companies
- Derivatives Market: MSEI also offers future and options contracts on multiple indices as well as stocks, which will allow the investor to hedge or speculate on the price fluctuations.
- Currency Market: MSEI allows for trading in foreign exchange derivatives. The advantage of trading in foreign exchange derivatives is that it provides the capability for participants to trade on the movements of other currencies, especially how the Indian rupee (INR) compares with other currencies, such as the U.S. dollar (USD).
The trade volume contributes directly to the amount of revenue collected by MSEI, meaning a large number of trades equals increased revenue generated from transaction fees.
2. Revenue from Listing and Membership Fees
One of the primary components of the MSEI business structure is encouraging businesses to make their stock available for trade through MSEI. To do so, a company will be required to pay a fee when it lists its stock on MSEI. By listing their stock on the exchange, this company can increase its visibility and provide its investors with an opportunity for liquidity and greater access to capital.
In addition to the fees charged for listing, MSEI also charges brokers a fee to become a member of MSEI. This membership gives the broker access to the MSEI trading platform on behalf of clients they have.
3. Revenue from Data and Market Information
Market data - including trading volume, price movement, order data, and other data - is collected extensively and sold to traders, analysts, and any financial institution requiring this information to make informed decisions regarding trading, strategies, or investments.
The exchange sells its market data subscription or license on a subscription or license basis and provides clients access to both real-time data and historical data through these subscriptions or licenses. By providing accurate and comprehensive market data, the exchange is able to maintain one of its many revenue streams by meeting the demand for higher-quality data in today’s rapidly expanding financial markets.
4. Technology and Platform Services
Providing technology solutions for participants in the marketplace is also a primary business operation for the MSEI. The Exchange invests significant amounts of capital into the development of trading platforms and the supporting technological infrastructure in order to provide efficient, fast, and secure trading systems for traders and brokers to use when executing trades in real-time.
MSEI may also offer technology services such as:
Co-location services: Traders have the ability to place their system closer to the Exchange's Infrastructure to facilitate lower latency.
Algorithmic Trading: The Exchange provides technology that supports both high-frequency and automated trading strategies.
5. Clearing and Settlement Services
To facilitate the trade confirmations, clearings and settlements between buyers and sellers, MSEI participates in the clearing and settlement of trades on its Exchange. MSEI has its own Clearing Corporation that facilitates execution of the clearing process so both the buyer of the security and the seller meet their commitments.
MSEI charges a small percentage of the value of each trade executed in addition to revenue generated from the infrastructure of the Exchange and a number of other services that help support secure settlements
6. Revenue from Other Services
MSEI offers a wide variety of other financial products (e.g. Commodity Derivatives, Debt Instruments, Currency Derivatives). These help create additional revenue for the Exchange.
In addition to providing trade execution, the Exchange may provide additional revenue through Corporate Actions such as Rights Issues, Bonus Shares, Dividends, etc.
Competitive Edge of MSEI’s Business Model
Although there are other exchanges in India, including NSE and BSE, MSEI has a unique business model that appeals to a wide variety of market participants, there are a number of reasons that MSEI's business model is an attractive proposition for many types of market participants:
- Focus on Niche Products:
MSEI provides access to products in the specialised areas of commodity derivatives, currency derivatives and emerging stocks; this enables the exchange to cater to a wider array of investors and traders, particularly those who are focused on these specialised markets.
- Technological Innovation:
MSEI leverages state-of-the-art technology, and has developed next-generation trading platforms that provide a seamless and efficient trading experience; therefore, the exchange is very appealing to both retail and institutional traders that require high-speed and secure execution of trades.
- Affordable Fees:
MSEI provides many services, including trading and listing services and data services; MSEI generally has lower costs for these services than the larger exchanges, therefore, it may provide a more cost-effective alternative for new businesses, lower-cap companies and brokers.
Challenges and Opportunities
The Metropolitan Stock Exchange of India Limited (MSEI) has many advantages but must also compete with both the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), both of which have larger shares of the Indian stock market. However, MSEI has some options for growth, including increasing their product range, technological capacity, and drawing new members to MSEI by providing lower fees or offering something new and different to the marketplace (compared to other exchanges). Therefore, the MSEI has the opportunity to grow its business model off of these strengths.
Conclusion
The Metropolitan Stock Exchange has a unique business model that combines traditional exchange services, cutting-edge technology and multiple revenue sources. The exchange's primary source of revenue is through trading and listing fees, membership dues, sale of market data, clearing house services, and providing technology platforms.
Although MSEI is competing against larger, more established exchanges (such as NSE and BSE), its strategic direction has positioned it to better capitalize on opportunities within the growing Indian Financial Market by focusing on niche and/or specialized products, competitive pricing and advanced technological applications. If MSEI continues to innovate and attract new traders (investors) to its exchange, it may very become a more significant player in the Indian financial ecosystem.