Spurred by MCX entry, BSE & NSE rush to match moves, cut trading costs.
Competition has increased between domestic stock exchanges. In the past six months, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have done things to cut trading cost that did not seem possible in the past six years.
In the latest set of moves, after BSE cut its membership fee from Rs 1 crore to Rs 10 lakh to lure NSE members, the latter is bringing down every petty technology cost to make traders feel happier.
After it waived VSAT (very small aperture terminal) charges of Rs 1 lakh last year, NSE has decided to end annual lease line charges of over Rs 1.5 lakh. It has also cut annual charges on point of presence (PoP) in Rajkot, Kochi and Jaipur from Rs 2.5 lakh to Rs 1 lakh. PoPs could soon be launched in other towns, too. PoP creates faster access to NSE servers and brings those whose offices are located in remote places on a par with traders in metro cities like Mumbai and Delhi. NSE operates over 6,000 VSATs, leased line and internet-based connections, connecting over 2,00,000 trading terminals spread across 1,200-plus domestic locations, one of the largest networks in the world.
VSAT is a type of two-way satellite that transmits both narrow and broadband data to satellites in orbit. The data is then redirected to other remote terminals or hubs around the planet. VSATs and leased lines are mainly used for wireless transmission of real-time data. Other VSAT users include the US Postal Service and Walmart.
Prior to technology charges, both NSE and BSE cut transaction charges in the cash and the derivatives segment by 10 per cent, a major step. Recently, NSE also expanded its terminal base in the country and put in place access points at various rural areas. It extended trading time and launched new products like the mutual fund trading platform and introduced new derivative products. BSE, too, is making persistent efforts to revive its derivative segment. It had changed the expiry cycle and made S Ramadorai, the informational technology industry veteran, its chairman.
MCX spurs rush
“All this is happening as the deadline for the MCX Stock Exchange to launch its equity trading is coming near and the regulator may soon give a go-ahead. The only way MCX can lure traders is by significantly bringing down trading costs, which they did in the commodity space to penetrate the rural market.
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Over 80 per cent of BSE’s and NSE’s revenue come from trading charges, so even if they bring down other charges, their bottom line would not be affected. If fact, if they do not do try to penetrate rural and semi-urban market, their market share will be threatened,” said a senior analyst with domestic research house, who did not want to be named due to compliance issues.
Both exchanges together generate an average daily turnover of over Rs 12,000 crore in the cash segment, in which NSE has the lion’s share. In the derivatives, NSE is a monopoly player and generates average daily turnover of over Rs 1 lakh crore.
The MCX SX is perceived to be a threat, as the exchange has been able to corner over 50 per cent market share in the currency futures trading within a year of operation, just as NSE has. More, MCX has an advantage as over 80 per cent of stockbrokers in the county use the software, ODIN, for trading purposes; it comes from Financial Technologies, the owner of MCX. Both NSE and BSE are pushing hard on developing their own trading software, with the idea of giving it free of cost to their registered brokers.