Pedestrians look up at an electronic ticker board showing a budget news report outside the Bombay Stock Exchange in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)  

MSCI Weighs Capping India, Brazil Weights Over Investor Access

(Bloomberg) -- MSCI Inc., one of the world’s biggest index compilers, is placing emerging markets including India and Brazil on notice for limiting investor access.

The two countries, along with Turkey and South Korea, are “potential future examples” of markets whose weights could be capped on MSCI indexes, the New York-based company said in a presentation on its website Wednesday.

All four countries restrict the use of their local data in derivatives created by offshore exchanges, which puts them afoul of MSCI’s anti-competition clause, and India also has a “lengthy and burdensome mandatory registration process” for foreign investors, MSCI said.

MSCI will now consult its clients and announce the results by Dec. 31.

The presentation is part of a broader review on how funds access global equity markets and shows the influence of firms like MSCI in lobbying for institutional investors. Since MSCI indexes are tracked by money managers with trillions of dollars in assets, any cap could limit inflows into a market and force a change in national policy.

“It is expected that stock exchanges, which often have legal or natural monopolies, should not impose clauses in their provision of stock market data,” MSCI said. “The existence of these types of practices will lead to a negative assessment.”

MSCI Chief Executive Officer Henry Fernandez has been vocal about his concerns regarding a dispute between India’s largest exchange and Singapore Exchange Ltd. The National Stock Exchange of India Ltd. and two peers in February cut licensing ties with overseas bourses and tensions escalated this month when it sued its Singapore counterpart to stop the June 4 launch of the latter’s Indian stock futures.

The Singapore bourse on Tuesday said it would delay the start of the contracts as the dispute heads to arbitration. The city-state’s regulator warned that a protracted fight would reduce the range of instruments for investors to manage risks in Indian equities.

South Korea has a 15.6 percent weight in the MSCI Emerging Markets Index. India is at 8.48 percent and Brazil 7.2 percent.

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