BSE at odds with NSE over 'high' clearing and settlement charges

The former says high payout to NSE weighing down its profitability

Rising outgo towards clearing and settlement fees has led to an altercation between the BSE and the National Stock Exchange of India (NSE), with the latter striking down the former’s request to lower the charges.

NSE said it has no plans to restructure the same and that it will continue with the pricing defined under the interoperability framework.

The interoperability framework, introduced in 2019, allows trades executed on any of the exchanges to be settled or cleared at either of the two clearing corporations -- NSE Clearing (NCL) or Indian Clearing Corporation (ICCL), fully-owned by the NSE and the BSE, respectively.

Earlier, each of the exchanges used their clearing corporations for trades executed on their platform.

As most of the options volume is settled at the NCL, analysts said that the charges paid by NSE to NCL come back as revenue in the consolidated financials. However, BSE is required to pay both NCL and ICCL for settlement and clearing charges.

On a standalone basis, BSE incurred a cost of Rs 63.8 crore towards clearing and settlement charges in December 2023 quarter, up from Rs 40.2 crore in the preceding quarter.

After its result announcement, the BSE said high clearing and settlement charges was one of the factors weighing down its net profit, which stood at Rs 108.2 crore in the quarter ended December.

“We have already requested the other clearing corporation. We have written to them, telling them that it is too much of a cost and they should relook at it because it has been a long time since the interoperability agreement was signed between the clearing corporation. And it is time for a review,” said Sundararaman Ramamurthy, managing director (MD) and chief executive officer (CEO), of BSE.

NSE, in its earnings call a few days later, clarified that it does not plan to restructure the charges.

“The clearing and settlement charges were defined early on when under the interoperability. Both the exchanges decided to use the services of both clearing houses. And they continue. Currently, there is no plan to renegotiate these contracts,” said Ashishkumar Chauhan, MD & CEO, of NSE.

Industry players said about 60 per cent of the client trading that happens on BSE is through brokers which are members of the NCL. These include the majority of the discount brokers.

Clearing and settlement fees are linked to the trading turnover. If the turnover increases, the fee (usually levied  Rs per crore of turnover) reduces.

Industry players said that given BSE's growth in the derivatives segment, its fees have gone down but it wants them to be reduced further by a third.

“First, there is no bulk discount for BSE as compared to that for NSE from NCL. Second, the cost for the settlement and clearing for BSE is almost double that of NSE. NSE enjoys a better margin on every contract traded. BSE had requested the cost to be cut down by one-third,” said an analyst privy to this development.

 The interoperability is also crucial for the continuity of the market ecosystem in case one exchange or clearing body faces a technical snag or an unforeseen situation. 

BSE can cut down on these charges if more clients opt to settle on ICCL instead of NCL.

The exchange said that it was working with foreign participants for institutional trades and increasing co-location facilities for participants.

NSE, on the other hand, is also working on expanding its co-location facilities and data centre, and is awaiting Sebi’s nod for the same.