Can Metropolitan Stock Exchange challenge the NSE-BSE duopoly?
In today’s Finshots, we explain why India hasn’t seen a third national stock exchange in years and whether MSE has any real shot at breaking the NSE–BSE duopoly.
The Story
Stock exchanges make money by charging a small fee on every trade that happens on their platform. So when you buy 100 shares of Reliance Industries or sell your Infosys shares, the exchange — whether it’s NSE or BSE, pockets a tiny cut.
These fees are usually charged per crore of turnover. For instance, BSE charges about ₹325 per crore for equity delivery trades.
Now, that may sound small. But when millions of trades happen every single day, those fees add up fast. In fact, transaction charges account for roughly 70–75% of BSE’s revenue. They’re not just important. They’re basically the entire business model.
But here’s the thing.
This model only works if you have volume. Without volume, there are no transactions. And without transactions, there’s no money flowing to the exchange.
This creates a brutal problem for any new exchange trying to enter the market.
Because let’s say, you buy 100 shares on a new exchange. Later, you want to sell them. But there aren’t enough buyers or sellers active on that platform. So your order just sits there. You’re stuck holding shares you can’t easily sell. That’s what illiquidity looks like. And no investor wants to take that risk.
So investors naturally gravitate towards NSE and BSE, where they know there will always be someone on the other side of the trade.
This phenomenon is called liquidity concentration. And once NSE and BSE captured most traders and investors over all these years, it became nearly impossible for a new exchange to attract them.
But why are we telling you all this?
Well, because the chatter is that Dalal Street is set to witness the addition of a new stock exchange by the end of January 2026 — the Metropolitan Stock Exchange (MSE).
And that naturally makes you wonder why it took so many years for another national stock exchange to even think of competing with the NSE–BSE duopoly in India.
For starters, the liquidity problem we discussed earlier is exactly why India has had only two national stock exchanges for decades.
Add to that the barriers to starting a new exchange, which are designed, almost intentionally, to be extremely high.
To put things in perspective, market regulator, SEBI, requires a minimum net worth (assets minus liabilities) of ₹100 crore just to grant a licence. But that’s not enough. You also need to set up a separate clearing corporation — the entity that settles who owes money to whom after trades. That clearing corporation also needs a net worth of ₹100 crore. So right from day one, you’re looking at over ₹200 crore invested even before you’re in business.
Then, after you launch, you need to achieve a minimum annual trading volume of ₹1,000 crore. If you fail to hit this threshold for two consecutive years, SEBI can shut you down, no questions asked. And that logic makes sense because if very few trades happen on an exchange, prices aren’t reliable and investors can get stuck. Thinly traded exchanges are also easier to manipulate and harder to regulate. Plus, an exchange that barely trades doesn’t help companies raise capital or investors deploy money efficiently. So SEBI would rather have you either scale up meaningfully or not exist at all.
And these are just a few of the hurdles. There are many other governance requirements like setting up statutory committees for surveillance, grievance redressal, and market integrity. You also need at least 25 trading members or brokers willing to operate on your platform. But brokers won’t join a new exchange unless they’re confident it will have volume. Which turns this into a classic “chicken-and-egg problem”, where you need participants to generate volume, but you need volume to attract participants.
All of this explains why India hasn’t really had a third stock exchange alongside BSE and NSE. Even NSE itself came into existence after brokers like Harshad Mehta formed powerful cartels and manipulated stocks on the BSE. That episode prompted the government to clean up the financial system by roping in Indian financial institutions such as LIC, SBI, IFCI and IDFC, along with a few global players, to promote a new exchange — the NSE.
This makes one thing clear. Without deep backing and a credible path to survival, setting up a stock exchange in India is a pretty hard business.
This is where the MSE is trying something different. The exchange has decided to boost liquidity through something called a comprehensive Liquidity Enhancement Scheme (LES).
What this essentially means is that instead of letting trading volumes build organically, MSE identifies around 130 liquid stocks — companies like Reliance, HDFC, TCS, and other regularly traded names. It then appoints designated market makers, or trading firms, whose job is to continuously provide buy and sell quotes, even when no one else is trading. So when retail investors want to place a trade on the exchange, there’s always a buyer or a seller available.
In return, these market makers are compensated, and the exchange also waives transaction fees for trades executed under this scheme. Think of it as temporarily subsidising liquidity, by guaranteeing tight bid–ask spreads and consistent quotes on some of the most liquid stocks, so that early participants can actually execute trades without friction.
This arrangement will run for the next six months, giving the exchange time to build critical mass and brand recognition, after which organic trading volumes could pick up.
Which brings us to the next question: why has MSE decided to scale up now?
To begin with, MSE isn’t a new stock exchange. When it launched in 2008, it was called MCX-SX and focused on currency derivatives trading. NSE, which already dominated the market, responded by offering the same product at zero transaction fees. MSE couldn’t compete with free and alleged that this amounted to predatory pricing, where NSE was deliberately underpricing to drive out competition.
MSE lost both money and volume, and eventually filed a complaint with India’s competition regulator, the Competition Commission of India (CCI). The CCI agreed with MSE, found NSE guilty of abusing its dominant position, and ordered NSE to pay ₹856 crore in compensation.
But NSE appealed. The case moved to higher courts and, for more than a decade, bounced around the legal system without resolution.
Now, though, NSE is at a critical juncture. It’s preparing to go public. And when a company lists on the stock market, it must disclose all pending lawsuits and contingent liabilities. A ₹856 crore case hanging over NSE’s head would meaningfully dent its IPO valuation. Which gives NSE a strong incentive to settle the matter before listing.
If that happens, MSE suddenly ends up with a permanent financial war chest, enough to operate at losses for years, if needed, while it builds market share. That alone changes the equation, turning MSE from an unsustainable startup into a well-funded competitor.
There’s another factor at play, as you probably already know. In 2024, SEBI changed the rules and said exchanges could offer weekly derivatives expiry on only one index per week.
The immediate impact was that NSE, which controls roughly 95% of the F&O market, had to discontinue Bank Nifty weekly options. These contracts alone accounted for about 47.5% of NSE’s weekly options premium turnover.
That, in turn, opened up a small but meaningful opportunity. MSE could now launch its own derivatives products on days that don’t clash with NSE or BSE expiries, giving traders more days in the week to hedge or speculate.
And finally, there’s capital. Since 2024, MSE has raised about ₹1,240 crore from leading brokers and investors like Zerodha* via Rainmatter Investments, Groww via its promoter entity Billionbrains Garage Ventures, and, more recently, Peak XV Venture Partners.
These brokers collectively control close to 40% of India’s retail demat accounts. And that kind of backing doesn’t just bring money. It brings distribution. Which means MSE isn’t starting from zero this time.
But yeah, even with all this going in favour of MSE, there’s no denying that some brutal realities could derail the whole plan.
For starters, the liquidity subsidies are temporary. The Liquidity Enhancement Scheme runs only until June 30, 2026. Once MSE stops paying market makers to provide quotes, we’ll find out if traders actually want to use the exchange on their own. Will they stay, or will they drift back to NSE where volumes are guaranteed?
Second, NSE’s dominance is almost unbreakable. NSE controls over 90% of India’s equity and derivatives trading. This means that every trading algorithm, every broker’s app, every institutional investor’s infrastructure is built around the NSE. To challenge this, MSE doesn’t just need to attract traders. It needs to become so essential that they can’t ignore it.
MSE might have to innovate relentlessly since it can’t compete on volume. Instead, it might have to think on the lines of launching products and features that traders find valuable enough to use a second exchange. Maybe it’s the Friday derivatives expiry, lower fees or something completely new. But without continuous innovation, MSE will find it hard to break out of its niche.
And finally, NSE and BSE won’t sit idle. They’re ultimately giants who will match MSE’s products, improve their own schemes, and use their dominance to make MSE’s life harder.
Which means that if MSE fails to win over even one of these challenges, it could risk remaining a small, subsidised also-ran stock exchange in an NSE-dominated market.
For now, we’ll only have to wait and see if MSE can genuinely emerge as India’s third national stock exchange, ending over 25 years of duopoly.
Until then…
*Zerodha, through its Rainmatter Fund, is an investor in Finshots.
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