Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Ajay Shah on cross-border exchange mergers

Ajay Shah has written an elegant analytical blog post on the illusory cost savings from cross-border exchange mergers. In my view however, these mergers are as much about integration of capital markets as they are about cost savings.

Twenty years ago, India had around twenty exchanges spread across maybe twenty different states. Each exchange had its own clientele of listed companies and investors; India was divided into several regional capital markets. Then we witnessed a rapid integration of the Indian capital market in which two exchanges in Mumbai became national markets and the other exchanges became defunct.

I believe we are on the cusp of a similar integration of capital markets on a global scale. We will probably go from a hundred different exchanges in a hundred different countries to maybe ten (maybe fewer) global exchanges. The question is whether in this new game the Indian exchanges will end up like the BSE and the NSE that survived the consolidation or whether they will end up like the CSE and DSE that became defunct.

The MIFC report had a bold and wonderful vision of India being among the winners in the globalization of financial services. I fear that we are now abandoning this vision. Meanwhile globalization is picking up speed – this year’s budget has pulled down a couple of the few remaining barriers to de facto capital account convertibility.


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