Why have BSE shares climbed 4% on October 11? Check reasons here

This shift is seen as a positive for BSE, as trading volumes are likely to shift to its platform, leading to an increase in transactions and revenue for it.

BSE share price: Shares of BSE, Asia's oldest stock exchange, were buzzing in trade on Friday, October 11, 2024, as the scrip climbed up to 3.95 per cent to hit an intraday high of Rs 4,383 per share.

The rise in BSE's share price followed the announcement from the National Stock Exchange (NSE) that it would discontinue weekly index derivatives contracts for Bank Nifty, Nifty Midcap Select and Nifty Financial Services, effective from November 13, 18, and 19, respectively.

The NSE will retain only the Nifty 50 for weekly derivatives trading.

"According to the Sebi directive, each exchange may offer derivatives contracts for only one benchmark index with a weekly expiry, effective November 20, 2024. From that date, weekly derivatives contracts will only be available on the Nifty 50 Index (NIFTY). As a result, the above-mentioned three indices will have their weekly index option contracts discontinued," the NSE said in a notification on October 10.

This, the exchange added, was in-line with Sebi's circular aimed at strengthening the equity index derivatives framework to enhance investor protection and market stability.

According to analysts, the move is seen as positive for the BSE, as trading volumes are likely to shift to its platform, leading to an increase in transactions and revenue for it.

"With only one benchmark index available for launch of weekly expiry, NSE/BSE will continue with Nifty/Sensex. Earlier, since NSE had an expiry on all days except Friday, BSE found it difficult to scale up volumes. Nevertheless, BSE will now have three more days to compete against NSE," analysts at Motilal Oswal Financial Services said in a recent report.

For BSE, since large volumes were happening on expiry day, its premium to notional turnover ratio was at 0.07 per cent compared to 0.16 per cent for NSE (as of September 2024).

"With probability of volumes increasing on farther than expiry days, this ratio would increase for BSE. This will not only help in revenues but also in bringing down the clearing and settlement costs," MOFSL said.

BSE discontinues Bankex, Sensex50 F&O contracts

The BSE, on October 4, had announced the discontinuation of weekly contracts for Bankex and Sensex 50, aligning with the recent mandate from the Securities and Exchange Board of India (Sebi). The weekly index derivatives contracts for Sensex 50 will be halted at the end of the day on November 14, while Bankex contracts will be discontinued on November 18.

According to the BSE's circular, no new weekly contracts will be created once the existing unexpired contracts reach their expiry dates. However, these unexpired contracts will continue to be valid until their respective expiration.

The BSE said that it will maintain its existing weekly Sensex contracts as the sole offering, ensuring that investors still have access to this widely followed index.

The decision came in response to a Sebi analysis revealing that retail traders have often faced major losses in equity derivatives trading. The report found that about 93 per cent of retail traders incurred an average loss of Rs 2 lakh each over the past three financial years. Additionally, the proportion of loss-making individual investors in futures and options (F&O) rose to 91.1 per cent in FY24, up from 89 per cent in FY22.

Another report by Motilal Oswal suggests that the overall average daily turnover (ADTO), including NSE and BSE, increased by 7.1 per cent month-on-month to Rs 538.6 trillion in September 2024. Within this, the ADTO for futures and options (F&O) rose 7.2 per cent, while cash ADTO saw a decline of 3.8 per cent. Retail cash ADTO fell 5.8 per cent month-on-month to Rs 52,000 crore.

BSE's total ADTO, as per the brokerage, increased 16 per cent M-o-M, driven by the growth in F&O volumes, as against the NSE's 4.3 per cent M-o-M rise.

With this, the market share of BSE in the total cash T/O segment declined to 6.6 per cent last month from 7.4 per cent in August, 2024. However, its market share in the options notional T/O segment grew to 26.8 per cent from 7.4 per cent in September, 2023 and 24.8 per cent in August, 2024. For options premium T/O, it grew to 13.3 per cent from 2.3 per cent in September, 2023 and 10.4 per cent in August, 2024.

"BSE should be relatively lesser impacted in the new regulatory environment vs NSE. Furthermore, the exchange has other revenue drivers such as colocation segment and new products (commodities and power). We currently have a 'Neutral' rating on the stock," MOFSL said.

Word of caution
 

That said, if the assumed notional ADTO declines by 20 per cent instead of a 22 per cent increase factored in, MOFSL expects BSE to take earnings hit of 9 per cent.

"If the premium to notional turnover for the options segment increases from 0.072 per cent assumed in our forecast to 0.09 per cent, as the volumes will start increasing farther from expiry, the impact will be nullified for BSE," it said.

At 11:42 AM, BSE shares were trading 3.19 per cent higher at Rs 4,350.50 per share.

The total market capitalistaion of BSE stood at Rs 58,801 crore, according to data on the NSE. The 52-week range of BSE stock is Rs 1,437.05-4,395.