In one of the strongest moves made by the Bombay Stock Exchange (BSE) to revive its equity derivative segment, the exchange today said it will pay a commission to stockbrokers who generate volumes.
In a circular, the BSE said it will pay Re 1 on every Rs 1 lakh of passive orders placed by its members in the stock and index futures segment and Rs 15 on every Rs 15 lakh passive order placed in the stock and index options segment. This will be with effect from December 29.
A passive order is when a broker bids for a security at a price lower than what it is trading for, to be booked later when that happens. In active orders, one just buys the security at whatever price it is available.
Stockbrokers said the move would surely result in higher volumes on the BSE. "If the exchange will pay Re 1 on every Rs 1 lakh passive order transactions, then it is likely that even large foreign institutions may look to generate volumes on BSE. It would at least help brokers cover their cost on Securities Transaction Tax," said Deven Choksey, managing director of K R Choksey Shares and Security.
However, brokers say the National Stock Exchange (NSE) will respond to BSE's move and the battle over derivative volumes will heat up in the coming days. On an average, nearly Rs 50,000 crore worth of volumes are generated in the domestic equity derivatives market daily. NSE is the leader in the segment, with nearly 98 per cebt market share.
Most of the previous attempts of BSE in the past nine years to revive its derivative segment have failed. Recently, the exchange changed the expiry cycle of its derivative products so that traders could take advantage of the arbitrage opportunity between NSE and BSE. The exchange changed the expiry day of all monthly index futures and options from the last Thursday of the month to the third-last Thursday. Also, the expiry cycle of all weekly options’ contracts will be changed from Monday-Friday to Friday-Thursday. This means the expiry will be on Thursday instead of Friday.
A couple of months earlier, the NSE had reduced the cost of transaction in cash andthe futures and optionssegment by 10 per cent.