We will leverage Brand Sensex

Q&A - Rajnikant Patel, CEO & managing director, BSE

The Bombay Stock Exchange, which is preparing to implement the long overdue demutualisation, is also making efforts to increase its share of the derivatives trade.

Rajnikan Patel, CEO and managing director of the exchange, tells Business Standard in an interview that BSE remains in talks with global exchanges to offload equity. Incidentally, he says, global exchanges continue to be interested in BSE in spite of the 5 per cent cap for single investors imposed by the regulator.
Excerpts:

What is the status of your exchange's IPO?

We have already initiated demutualisation and are discussing with prospective strategic partners. Securities & Exchange Board of India has put a 5 per cent cap on single investors in stock exchanges, as they do not want anyone holding too big a chunk of the equity. However, the Indian market will benefit from the global perspective of strategic partners. From that angle, the 5 per cent cap is perceived as restrictive. Investors with 5 per cent equity cannot be called strategic.

Do you see the cap as a barrier to getting a good premium?

Five per cent equity versus 26 per cent equity definitely makes a difference, but BSE is not looking at only that kind of valuation. We look at what it means to us in terms of reach, business, product, etc. BSE is looking on how to leverage and synergise the special expertise and domain of the partner and how it will help in making the Indian capital market more global.

How will the IPO be structured?

It will be a mix of strategic partners, including exchange-related entities. We are already in discussions with a few selected exchanges and they are showing the same keenness and interest, despite the 5 per cent cap. It is to be seen whether Foreign Institutional Investors (FIIs) are allowed at the pre-IPO stage or can come through the IPO or if they can invest through the secondary market. We are waiting for the FDI guidelines. We have to demutualise by May next year.

Have you tried to assess the brand value or enterprise value of the exchange?

We have not done any such valuation. We are waiting for some more clarity. We will do all such valuations as a part of our demutulisation process.

How would you increase your share of the derivatives trade?

We are committed to and focused on developing the derivatives segment. Recently, we have seen some activity in Sensex derivatives. Although it is not significant, we believe that in such a competitive environment, the Sensex has the potential to provide arbitrage and its brand value can be leveraged. The growth of BSE's derivatives segment will be slow and gradual.

We have upgraded the technology and introduced enabling features to facilitate market players. We have enrolled 150 new members in the derivatives segment and inquiries are increasing. When the Sensex-based ETF (exchange traded fund) was launched in Hong Kong recently, the response was reasonably good. The Sensex is a global brand and widely tracked as the barometer of the Indian economy.

Do you see Sensex-based derivatives or products being launched overseas?

We will leverage the Sensex as part of our growth strategy. We are evaluating various options and related products being launched in other parts of the world. The Sensex and BSE are already patented in the US and CFTC has given permission to launch futures trading in products based on it.