Mumbai: The Bombay Stock Exchange’s (BSE) bet on slashing membership fees by 90% to Rs10 lakh seems to be paying off with many brokers queuing up for membership of Asia’s oldest bourse, but its impact on trading volumes is not clear yet.
While 250 new members have already filed applications and paid an initial deposit of Rs1 lakh each to the exchange in the past two weeks, a senior BSE official said another 1,200 prospective members have made enquiries about the new membership package.
On 22 April, BSE slashed the membership deposit fee by 90% for new members in both the cash and equity derivatives segments in a bid to attract more members.
“Our membership base will grow at least three times if all the prospective members buy our new package,” said a senior BSE official, on condition of anonymity. “We will have the largest broker base in India.”
Of the 1,000 existing BSE members, around 600 are active members. An active member is one who settles trades worth at least Rs1 crore a month. BSE’s younger rival, the National Stock Exchange or NSE, has 1,497 members, of which 1,200 are active.
“The ultimate goal is to get more business,” the official added. “If all new members execute trades worth even Rs1 crore a day on a conservative basis, our daily turnover will increase by at least 20%.”
Photo: Abhijit Bhatlekar/Mint
BSE has been losing trade volumes in the cash segment to NSE. It accounts for roughly a quarter of the market in the cash segment and nearly zero trade in the derivatives segment.
In April, BSE recorded a total turnover of Rs93,929 crore in the cash segment while NSE’s turnover was Rs2.76 trillion
Following the membership drive, BSE may have the largest membership base among Indian exchanges but still it may not see any dramatic rise in its turnover, many brokers said.
“By reducing the security deposit, you are only going to get small fry. Some people who were earlier trading through a broker will now have a card of their own. This is not going to make any big difference to the volumes,” said P.S. Balasubramanian, vice-president, Muthoot Securities Ltd, a member of both BSE and NSE.
According to him, most NSE members were originally BSE members and a majority of NSE members would have a BSE card. “I am not going to choose the exchange by the amount of deposit. I am going to look at the depth (of orders) in the scrip and volume on the screen. On these counts, BSE is lagging. On many scrips, volume on NSE is five-seven times that of BSE. Sometimes it becomes difficult to sell 50 shares on BSE,” he said.
Liquidity is the key to any exchange. “Once volumes gravitate to an exchange, very rarely do they migrate to a different platform. Thus, liquidity is sticky and creates brand value for an exchange. With liquidity almost impossible to poach, exchanges are a difficult-to-replicate business,” said Nikhil Vora and Swati Nangalia of IDFC-SSKI Ltd, a Mumbai-based brokerage, in a recent report on Indian exchanges.
According to them, liquidity on an exchange, by virtue of its nature, creates strong natural dominance of a few players. “In this way, liquidity acts as an effective barrier to competition. Such being the nature of the industry, attracting liquidity through innovation is difficult.”
According to an official of the Association of National Exchange Members of India, an industry lobby, a few NSE members who would like to trade on the firms listed only on BSE would be interested in the offer. “Even today, many NSE members hold BSE membership to enable them to trade in these scrips. Many sub-brokers who at present trade through a broker and pay him a cut would be interested in this offer as an opportunity to cut the extra layer in the chain. For some, it could be a matter of prestige,” he said.
Around 4,500 stocks are listed on BSE while NSE has 1,872 companies listed on it.
If a broker opts for a trading-cum-self clearing membership on BSE, he is required to pay an additional deposit of Rs20 lakh in the form of a bank guarantee or fixed deposit, apart from the Rs10 lakh deposit paid for the trading membership.
For firms, NSE charges a deposit fee of Rs85 lakh. For membership in the derivatives segment, NSE charges Rs25 lakh from both categories of members.
Under the new package, BSE is offering a free trading membership in the derivatives segment for all members in the cash segment.
The total cost of obtaining a BSE membership will now be Rs30 lakh, which includes payments of Rs10 lakh each towards deposit, base minimum capital and the Trade Guarantee Fund (TGF). Besides, the members will be required to pay admission fees, annual subscription fees and initial contribution towards TGF.
The existing members of BSE, who had deposited Rs1 crore for membership, will not get a refund of Rs90 lakh. Instead, they will get a rebate on transaction fees payable to the exchange to the extent of 12% annual interest on the extra money kept.
The two exchanges have been trying hard to expand their broker base over the past six months. While BSE has been experimenting with new products in the derivatives segment, NSE has been tying up with regional exchanges. In November, NSE tied up with the Madras Stock Exchange (MSE). The brokers, who get a membership on MSE for Rs2 lakh, are allowed to trade on NSE without any extra fee.
An NSE official, on condition of anonymity, said that 29 new companies got listed on NSE recently through MSE. Currently, 15 members of MSE trade on the NSE platform.
Competition in the exchange space will only intensity once MCX Stock Exchange Ltd starts equity trading. The exchange is awaiting the nod of the capital market regulator. Recently, MCX held a meeting with stockbrokers in Mumbai to discuss its roll-out plans.