Response to BSE’s earlier move, as both compete to expand base.
A major entry barrier to becoming a stock broker of the country's top bourse is set to come down. The National Stock Exchange (NSE) is contemplating a move to reduce its deposit-based membership fee for new entrants in the coming months.
According to NSE sources, the exchange is planning to reduce the fee by 50-60 per cent in both equity cash and derivatives segments. At present, the fee for the equity cash segment, which has around 1,500 registered brokers, is Rs 1.25 crore, while the cash market plus derivatives membership is available for Rs 1.5 crore. The proposal is to set the cash segment fee at Rs 50 lakh and the cash plus derivatives fee at Rs 75 lakh.
When asked, an NSE official said, “A proposal to reduce the fee has been discussed but there are no immediate plans.”
The proposal follows a similar recent move by its rival, the Bombay Stock Exchange (BSE), which slashed its membership fee by 90 per cent, from Rs 1 crore to Rs 10 lakh. Within a few months, it got 250 new members, of which many were also NSE members. Increasing the membership base is a strategy exchanges use to attract liquidity.
BSE will be hurt by the NSE move as traders will be attracted to the latter due to higher liquidity. To become a BSE member, a broker has to pay a fee of Rs 10 lakh and around Rs 21 lakh in guarantees.
NSE will also announce a different structure for players.
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On an average, cash and equity derivatives trades of Rs 1.2-1.5 lakh crore are recorded daily. However, NSE has a monopoly in equity derivatives, with very few or no trades being conducted on BSE. In the cash segment, BSE generates 25-27 per cent of total volumes.
Fee competition
It was NSE which started the system of deposit-based membership at a time when BSE was an elite club. Till some five years ago, entry to BSE was restricted to those who could afford the expensive membership card, the cost of which fluctuated between Rs 1.5 crore and Rs 4 crore.
The domestic stock exchange space has seen heated competition in the past year after a new management team took over BSE and the MCX Stock Exchange (MCX-SX) tried to foray into equity trading. BSE’s new fee structure, however, has left very little scope for MCX-SX to bank on this strategy.
Both BSE and NSE have announced sweeteners like reduction and in some cases waiver of transaction charges in cash and derivatives. They have upgraded to international standards in terms of technology and trading speed and are making attempts to act as end-to-end solution providers by consolidating clearing and settlement, technology and depository businesses.
Also, both are moving quickly to form alliances with other global exchanges to attract trader interest in their key benchmark equity indices and turn them into brands. Market players say BSE and NSE are competing to consolidate the exchange technology business against its rival, Financial Technologies, which promotes the MCX group of exchanges.