Mumbai: The Bombay Stock Exchange Ltd (BSE) Asia’s oldest stock exchange, launches currency futures on Wednesday in a renewed effort to catch up with 16-year-old rival National Stock Exchange Ltd (NSE).
The 133-year-old BSE said “there is enough space in this segment”. Market participants, however, are not too sure how BSE will be able to best NSE.
The older exchange trails in most businesses in which it competes with NSE.
“We are hopeful of generating satisfying volumes for ourselves,” said M.L. Soneji, chief operating officer, BSE, in an emailed response. That may not be easy.
None of the stock exchanges or the Multi Commodity Exchange of India Ltd, which has also got an approval from the regulator, the Securities and Exchange Board of India to start trading in currency futures, would reveal how many brokers and banks have signed up for trading. An email query sent to NSE remained unanswered.
Also See How they compare (Graphic)
The Reserve Bank of India has allowed a standard $1,000 rupee-US dollar contract in the currency futures market and exchanges are not allowed to offer different contract sizes or product innovations to woo clients.
In a month since this product started trading on NSE, the average volume has been around 56,600 contracts daily, worth $56.6 million (Rs265 crore), thanks to so-called margin requirements and the low limit on volume. The first requires traders to deposit a certain proportion of the value of their contracts with the exchange, and the second makes currency futures irrelevant for large companies. The daily turnover of India’s foreign exchange market is about $48 billion.
“Any exchange has to find its own business model,” said a broker, who has a membership with both BSE and NSE and wished to remain anonymous for that reason. “Unfortunately, BSE tries to emulate NSE rather than create its own business model.”
In currency futures, NSE has a headstart over BSE. In the so-called cash segment, where shares change hands, BSE had the first-mover advantage. And in the futures segment, both exchanges started simultaneous trading in June 2000. Today, NSE has a virtual monopoly of the market with average daily futures and options trading turnover of Rs45,827 crore this financial year, while BSE’s has slipped to around Rs20 crore.
Over the years, BSE has let its market share slip due to a stock market scam, inability to adopt new technology faster and resistance to change from its members.
It was rocked by a scam in 2001 when Mumbai-based broker Ketan Parekh rigged the price of several scrips and brought down two banks from which he borrowed money for share purchases.
“The scam...led to BSE members shifting (trading) to NSE,” said M.R. Mayya, former executive director of the exchange.
It is time for them to switch back, he added. Since the scam, BSE’s derivatives trade stagnated while NSE’s took off. To be sure, many brokers maintain accounts with both the exchanges. BSE has 982 members, a number comparable with NSE’s 1,009.