Nearly nine months after the Bombay Stock Exchange (BSE) launched a market- making scheme in the equity derivatives segment, its share in the latter has risen to 20-22 per cent. This is on the back of a rise in the number of broker participants trading on the exchange, due to various incentives extended to them.
BSE follows a physical settlement system in derivatives and saw a little more than 400 new brokers since the incentive scheme began. BSE's rival, the National Stock Exchange (NSE), which has followed a cash settlement system in equity derivatives for a decade, has around 1,500 brokers registered.
Overall, a little over 6,000 sub-brokers shut shop in the country last year due to poor market conditions. There are currently no foreign institutional investors which trade derivatives on BSE's platform. About 100-150 domestic trading members generate volumes on BSE, mainly through their proprietary trading desk. BSE has spent Rs 61 crore on its Liquidity Enhancement Incentive Programmes Scheme for its derivatives segment till now, of the Rs 107 crore sanctioned by the exchange.
Market players say if the BSE's market making schemes go on till the end of this year, and if participation of brokers increases, physical settlement in derivatives could get a boost. On an average, BSE daily trades between Rs 25,000 to Rs 50,000 crore worth of equity derivatives. Around expiry, the volumes even shoot up to about Rs 60,000 crore.
Currently, the derivative segment trading on both exchanges is concentrated mainly in the index futures and options segment. NSE's key index, the Nifty, is the most popular derivative index in India. However, another key reason for pick-up of options trading on BSE is the difference in fee structure between the two exchanges. NSE charges Rs 5,000 for every Rs 1 crore of options turnover; BSE takes a measly Rs 50 for the same. NSE had lowered the trading cost in F&O and the cash segments by 10 per cent in September 2009. This had resulted in a major spurt in options trading volumes, from around 10 per cent of all derivative trades to 45-50 per cent on NSE. In response, BSE had lowered the membership fees on its platform by 90 per cent, to Rs 10 lakh in 2010, and also changed its derivative expiry cycle to the last Thursday of every month from mid-month.