Quite similar to the tariff war in the telecom sector, a pricing war is brewing among the domestic commodity and equity bourses. However, while telecom sector players have slashed tariffs to gain new subscriber base and expand the market, incumbent stock and commodity exchanges have reduced transaction charges to protect their existing territory from the threat of new players entering the fray.

Ahead of the launch of trading by Indian Commodity Exchange (ICEX), jointly promoted by Indiabulls Financial services and MMTC, Multi Commodity Exchange (MCX)?the existing dominant player in the commodity trading?has drastically reduced its transaction charges to Rs 2.50 up to a turnover of Rs 250 crore from its existing charge of Rs 4 up to a turnover of Rs 20 crore.

Similarly, in the stock exchan-ges segment, sensing threat from the entry of MCX?SX (promoted by MCX and Financial Technologies) into equity and derivate trading, the NSE in September slashed its transaction charges by over 7% from Rs 3.50 per lakh (0.0035%) of the traded value on each side to a slab-based fee structure of Rs 3.25 up to total traded value of Rs 1,250 crore a month.

The move was soon followed by an announcement of similar reduction in transaction charges by India?s oldest bourse, the BSE, which has steadily lost its market share in equity and derivative segment to NSE.

As competition in any sector benefits the end-user, this latest pricing war will definitely help traders and investors to transact higher volumes at a lower cost, which will also help exchanges to boost their trading volume. But like the telecom industry where increased competition had resulted in wireless subscription growing by over 10 million per month, the key question here is whether the pricing war among stock exchanges will develop the industry and help promote equity culture among the masses.

So far, less than 5% of the household savings in India are in capital markets. In this context, the latest pricing war among the existing exchanges is directed more to check any defection of their trading members towards rivals than to gather more investors.

?bijith.r@expressindia.com