BSE pins hope on international bourse for derivatives push

The exchange is pinning its hopes on its upcoming international exchange to get a toehold in the equity derivatives segment

BSE, Asia’s oldest stock exchange, is pinning its hopes on its upcoming international exchange to get a toehold in the equity derivatives segment.

The exchange will be banking on various tax sops given by the government, including exemptions from stamp duty, as well as commodity and securities transactions tax (STT), to attract market participants. “We are clocking decent volumes in the currency and interest rate futures segments and are hoping the international exchange will provide us a platform to make a mark in the equity derivatives space as well,” said an exchange official on condition of anonymity.

The international exchange will provide an electronic platform for facilitating trading, clearing and settlement of securities, commodities, interest rates, currencies and derivatives by international investors.

  “STT is one of the biggest sore points for investors participating in derivatives trading and the new exchange will eliminate that. A lot of Indian traders dealing in equity derivatives from Singapore and Dubai may be tempted to set up desks here,” said a broker, on condition of anonymity. He, however, added that the going may not be easy and the exchange will have to educate and sensitise traders and investors about the opportunities available on the new exchange and offer the right basket of products to attract participants.

At present, sellers of options contracts have to pay an STT of 0.05 per cent on the premium value. In addition, STT on buying options that get exercised is 0.125 per cent of the entire contract value. For futures contracts, sellers have to pay an STT of 0.01 per cent.

BSE’s volumes in the equity derivatives segment have dived to almost nil after the exchange trimmed its incentive structure for market makers last year. The BSE had launched a series of liquidity enhancement incentive programmes (LEIPS) to create self-sustaining liquidity in its futures and options segment in September 2011.

“After sustained effort at increasing liquidity, we realised the open interest did not go up much, though volumes and turnover did increase. In this context, it was decided to slowly taper the LEIPS and focus on building volumes by putting in sales efforts with trading members and buy side customers to get more market share,” the exchange had said in an emailed response to Business Standard earlier this year.

An email sent to BSE did not get an immediate response.

Sources said mock trading had begun on the international exchange and the next step would be to offer membership to brokers.

In January 2015, the BSE had signed a pact with Gujarat International Finance-Tech City (GIFT) to set up the two entities at the GIFT city, India’s first International Financial Services Centre (IFSC). Besides the exchange, the BSE also proposes to set up an international clearing corporation in the GIFT-IFSC so that foreign exchanges and clearing corporations may be inducted as partners into these entities.

Several emerging IFSCs around the world, such as Shanghai and Dubai, are aspiring to play a global role in the years to come. London, New York and Singapore can be counted as global financial centres.