The Bombay Stock Exchange (BSE) is set to launch the third and final phase its market-making scheme in February. This is after the exchange tasted success with the first two phases, as average daily equity derivative volumes recorded a sharp jump from nil to Rs 3,000 crore, in nearly four months.
So far, BSE has managed to corner a 20 per cent market share from its rival, the National Stock Exchange (NSE), in the index futures segment. According to BSE data, Sensex futures worth Rs 1,900-2,000 crore were traded daily compared to Nifty futures worth Rs 8,000- 10,000 crore. However, the NSE was way ahead with total average daily equity derivative volumes at Rs 1 lakh crore.
From February, BSE would pay market makers for minute by minute presence in the derivative segment. Also, all participants would get paid on a pro-rata basis, which means they would be paid in equal proportions instead of a first-come first-serve basis. According to BSE officials, nearly 25 per cent of their current derivative volumes were unpaid.
“The BSE is already paying around Rs 60 lakh daily to market makers and participants on its platform. The majority of this money is distributed among 100 brokers, which means each takes at least around Rs 1.5 lakh. Monthly, the exchange is paying out Rs 10-12 crore against the Rs 17 crore that it had planned to. Therefore, it is believed that outgo of incentive money could be higher in February and March, the last two months of the scheme,” said a trader with a South Mumbai-based brokerage.
Market players said the real test would be whether it is able to sustain these volumes after the incentive scheme. According to the Securities and Exchange Board of India, an exchange can run the scheme for six months. The BSE board has approved Rs 100 crore on this. Thus, brokers generating volumes on the exchange are currently being paid out of BSE’s pocket. Around 300 stock brokers had registered with BSE for derivatives trading.
Market experts expect the BSE to corner 15-25 per cent of market share from NSE in the equity-derivative segment. For this BSE volumes will have to rise to Rs 15,000 crore from the current Rs 3,000 crore before the end of the market-making scheme.
