Markets
BSE trims contract prices, tick size in chase for market share
Summary
The BSE has tried hard for two decades to gain market share in derivatives without much success
MUMBAI : In an attempt to increase volumes in its equities cash and derivatives segments, BSE has initiated some novel strategies under the stewardship of Sundararaman Ramamurthy, who took the helm at Asia’s oldest bourse in January. In the derivatives segment, the BSE on Monday re-launched futures and options on the Sensex and the Bankex that expire on Friday instead of Thursday, so as to not directly compete for volumes with its larger rival.
“Our Sensex contracts have a smaller lot size of ₹6 lakh than the ₹9 lakh on Nifty, which makes it cheaper for traders and investors," Ramamurthy, MD & CEO, BSE, said in an interview.
The BSE has tried hard for two decades to gain market share in derivatives without much success. It had launched a liquidity enhancement scheme under which members giving two-way quotes—buy and sell—were incentivized, but these measures didn’t work, resulting in the exchange having withdrawn them and focusing on redesigning the contracts to change the tide.
The gap between younger rival NSE and the BSE is borne out by the equities derivatives volumes on the two exchanges. The average daily turnover (ADT) of derivatives segment on BSE was ₹1.38 trillion in FY23. Against this, NSE’s ADT was a whopping ₹153.5 trillion in same period.
BSE has relaunched weekly as well as monthly index futures and options. NSE currently runs monthly index futures and weekly index options.
On the equities spot or cash market again, the difference in turnover is glaring. Against BSE’s market share of 7.2% in FY23, NSE accounted for almost 93% market share.
In absolute terms in FY23, average daily cash volume on BSE was ₹4,132 crore, while that on NSE was ₹53,434 crore.
In a bid to increase market share to at least 10%, Ramamurthy has been engaging with domestic institutions to raise the volumes on his platform.
“Of the total 900 active members on BSE and NSE, it calls for each member to raise the volume by ₹2 crore, which is not much of an ask as we attempt to deepen liquidity through measures which cut the impact cost of trading."
Impact cost is cost an investor bears while executing a transaction in a given security.
Other measures to reduce impact cost and raise turnover involve BSE reducing tick size on some shares. Tick size is minimum price that exchange-traded assets can move.
For instance, data shows that BSE reduced the tick size to 1 paisa for stocks priced below ₹100 from 1 March. Earlier, BSE had 1 paisa tick for only stocks less than ₹15.
The 1 paisa tick size change has helped raise the ADT of these stocks from ₹513 crore in February (14% of total ADT) to ₹540 crore in March (14.7%) and ₹603 crore in April (20%). Incidentally, Ramamurthy had served as a senior member of the NSE team since its inception in 1992, besides having worked as MD & chief operating officer in the Indian arm of Bank of America, before joining BSE.
