Specific Investor Scenario

You see a stock trading at ₹100 on NSE but ₹95 on MSEI. Your first instinct is to “Sell on NSE, Buy on MSEI” to make a quick ₹5 profit. But when you try to buy on MSEI, your order doesn’t execute, or it executes at ₹101. What happened? And is your money safe if the exchange faces technical issues?

Quick Answer

The operational safety of MSEI is guaranteed by SEBI, but the market risk (liquidity and price gaps) is significantly higher than on the major exchanges.

Official Fact: According to the MSEI Investor Protection Fund (IPF) Guidelines, the exchange maintains a dedicated fund to compensate investors in the event of a broker default, similar to the funds at NSE and BSE.

Regulatory Context

MSEI is a Market Infrastructure Institution (MII). Under SEBI Regulations, it must maintain:

  1. Surveillance: Monitoring for insider trading and market manipulation.
  2. Settlement Guarantee: Ensuring that if you sell a stock, you always get your money, even if the buyer defaults. This is handled by a SEBI-recognized clearing corporation.
  3. Dispute Resolution: In case of a conflict with your broker on MSEI, you have access to the same arbitration process as any other exchange.

The Three Main Risks on the MSEI Platform

1. Liquidity Risk (The “Gap” Risk)

Even with the new Liquidity Enhancement Scheme, MSEI volumes for certain stocks may be lower.

  • The Risk: You might be able to buy a stock easily through a Market Maker, but if that Market Maker leaves the screen during a global crash, you may find no buyers for your shares at a fair price.

2. Execution Risk (Slippage)

Because there are fewer orders in the “book,” a large order can “eat through” the available prices very quickly.

  • The Risk: If you place a Market Buy Order for 1,000 shares, you might get 100 shares at ₹100 and the next 900 shares at ₹105 because there were no other sellers in between.

3. Information Lag

While the technology has been upgraded, some third-party data providers (like chart websites or some broker apps) may update MSEI prices slower than NSE prices.

  • The Risk: You might be making decisions based on data that is 2-3 seconds old, which is “forever” in a volatile market.

Mandatory Safety Checklist for MSEI Traders

  • Limit Orders ONLY: Never, under any circumstances, use a Market Order on MSEI.
  • Bid-Ask Spread Check: If the difference between the ‘Buy’ and ‘Sell’ price is more than 0.5%, avoid the trade.
  • Volume Verification: Check the “Daily Volume” of the stock on MSEI before entering a position you intend to exit quickly (Intraday).
  • Broker Confirmation: Ensure your broker provides a Contract Note specifically mentioning the “MSEI” exchange for the trade.
  • Small Position Sizing: Keep your MSEI exposure as a small percentage of your total trading capital until you are comfortable with the execution quality.

Action Items for Investors

  1. Enable MFA: Ensure your trading account has Multi-Factor Authentication (MFA) to prevent unauthorized trades on any exchange.
  2. Use SCORES: If your broker refuses to resolve an issue regarding an MSEI trade, file a complaint on the SEBI SCORES portal.
  3. Track Clearing: Verify that your MSEI trades are cleared by a SEBI-regulated clearing corporation (like NSE Clear or ICCL).

Official MSEI Investor Guide on Safety and Protection: msei.in/Investors/Investor-Guide

Verify current status at nseindia.com, bseindia.com, or msei.in before trading.