New Anti-Competitive Measures Impacting the Indian Equity Market

16-Feb-2018 Intellasia | BusinessWire | 4:51 AM Print This Post

NEW YORK–(BUSINESS WIRE)–MSCI Inc. (NYSE: MSCI), a leading provider of research-based indexes and
analytics, announced today that it is closely monitoring developments
related to the concerted announcement by three Indian stock exchanges,
including the two principal exchanges, of the imposition of
anti-competitive measures restricting the accessibility of the Indian
equity market. MSCI is evaluating the measures’ potential impact on
existing financial products and the future accessibility of the Indian
equity market for international institutional investors more generally.

In a clearly negative development for the accessibility of the Indian
equity market for international institutional investors, the exchanges’
announcement made on February 9, 2018 would impose, following the
expiration of contractual notice periods, a set of restrictions on the
use of traded price data inconsistent with the practices of any other
market in MSCI’s Emerging Markets Index series and could result in an
unprecedented disruption of trading in financial products in markets
around the world.

In their press release, the National Stock Exchange, the Bombay Stock
Exchange and the Metropolitan Stock Exchange announced that they will no
longer provide stock exchange information to any foreign exchange or
trading platform for trading or settling derivatives, and will no longer
license or provide market data to any index provider or its licensees
for the creation of indexes or derivative financial products based on
such indexes that would be traded or settled on a non-Indian exchange or
trading platform where the weight of Indian securities in the index is
at least 25%. The restriction would apply to all derivatives that are
traded or settled on a non-Indian exchange or trading platform, whether
they were issued by an exchange or by some other party. The announcement
also refers to the imposition of a written pre-approval restriction on
the issuance of certain ETFs and ETNs or similar products based on
indexes, but the full scope of the restriction is not yet clear.

Based on the exchanges’ press release, we understand that the exchanges
do not seek to impose a precipitous or disorderly wind down of the
various products that would be affected in many markets around the
world. Nonetheless, given the breadth of the application of the changes
referred to in the announcement, we believe that if the changes are put
into effect, the result will be disruptive and harmful to international
institutional investors in Indian equities whether accessing the market
onshore or offshore.

Under MSCI’s Market Classification Framework, anti-competitive measures
restricting investors’ access to derived stock exchange information
receive a negative score in the Competitive Landscape category. This is
because of their negative impact on international institutional
investors as the range of available financial instruments may be
significantly reduced, limiting ways for cross-border investors to
access a local market or to hedge an exposure to a local market.

The introduction of restrictive measures that may result in a material
deterioration of the accessibility of an equity market is reviewed
carefully by MSCI in consultation with international institutional
investors and other market participants and could lead to a change in
market classification. As stated above, the breadth of the restrictions
announced by the Indian exchanges is unprecedented in any equity market
in the MSCI Emerging Markets Index series. MSCI strongly suggests the
Indian exchanges and their regulator, the Securities and Exchange Board
of India (SEBI), reconsider this unprecedented anti-competitive action
before it leads to any unnecessary disruptions in trading or a potential
change in the market classification of the Indian market in the MSCI

MSCI welcomes feedback from market participants on the Indian exchanges’
announcement and will continue to monitor the situation and release
further communications as warranted.

About MSCI

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MSCI serves 99 of the top 100 largest money managers, according to the
most recent P&I ranking.

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