NYSE Group Buys into India Market

New York Stock Exchange cements its position in Asia with its purchase of a strategic stake in the Mumbai-based National Stock Exchange

Even before wrapping up its purchase of Euronext to give it a big stake in Europe, the New York Stock Exchange (NYSE) is looking toward Asia on its march toward globalization. The NYSE Group's 5% purchase on Jan. 10 of India's leading marketplace, the Mumbai-based National Stock Exchange (NSE), for $115 million sets it up to take part in the explosive growth of the country's financial markets.

The investment is a long-term play that gives the NYSE the largest stake in the exchange permitted by the Indian government. Nelson Chai, the NYSE Group chief financial officer (CFO), concedes that it is not a controlling stake, nor does it give the New York bourse a chance to share directly in the earnings gains of the National exchange. But he notes that 5% is the maximum permitted now, suggesting that over time the NYSE's holdings could grow. "It is a strategic investment," Chai says.

Benefits more important than a direct profit and loss effect could flow to the NYSE even before any expansion of the holdings. For one, Chai says the NYSE has its eye on listing more Indian companies and the National exchange could be helpful in directing such business toward New York. Currently, the New York exchange lists 10 companies from India whose total global market capitalization is approximately $76 billion.

Examining the Motivation

The deal also gives New York an entrée into the growing Indian derivatives business, where the National exchange has 99% of the business in the Indian market. In stocks, the exchange controls about 67% of Indian trading.

The NYSE is keenly interested in expanding into derivatives, a big part of its motivation for taking on Euronext. Similarly, the Chicago-based futures exchanges, especially the Chicago Mercantile Exchange, have been looking at Asia for expansion. This deal puts the Merc on the sidelines in the growing Indian market. Ironically, the former chief executive officer (CEO) of the Merc, NYSE board member James J. McNulty, was on hand in Delhi to take part in the signing ceremony.

The NYSE Group is buying the shares of NSE for cash from a consortium of selling shareholders, including ICICI Bank Limited, Industrial Finance Corporation of India Limited, IL&FS Trust Company Limited, Punjab National Bank, and General Insurance Corporation of India. The deal is expected to close in the first quarter of this year.

"Our investment in India's National Stock Exchange complements our global growth strategy," said John A. Thain, CEO of the NYSE Group. "The National Stock Exchange shares our global vision."

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