Bombay Stock Exchange (BSE), the country’s oldest, has slipped to a much lower level on the volume chart in the exchanges space. Among the nine national exchanges across markets, BSE is sixth on the volume chart.
The exchange has been planning several new initiatives to bring back lost business. These include appointing market makers for derivatives trading, increasing the response time for trade and making it 20 times faster than before, and a pre-opening session for a few thousand more scrips.
On the volume front, NSE has remained on top, going by the data for April. Even the United Stock Exchange, in which BSE has 15 per cent stake and is known as a BSE group company, has also scored over BSE on volumes. Among all national exchanges, only ICEX, ACE and the Ahmedabad-based NMCE are behind BSE. ASE started operations just a few months earlier.
A BSE spokesperson, however, has said this comparison is improper, as globally the currency trading volumes are several times higher compared with equities. However, he said, the exchange had been taking several initiatives, which would eventually cause some positive results on the volume front down the line.
Another reason cited for higher volumes in currencies and commodity derivatives is that there is no securities transaction tax (STT) on trades, which is attracting large volumes. BSE collected and paid Rs 1,200 crore as STT last financial year.
BSE and NSE both have proposed to the market regulator, the Securities and Exchange Board of India (Sebi), to allow the appointment of market makers for derivatives trading. While NSE doesn’t need market makers for equity and currency derivatives, it plans to appoint them for trading in overseas indices, which is set to begin in the near future. BSE, on the other hand, wants to prop up derivatives trading and market makers will provide two-way quotes for each scrip in the derivatives segment and provide liquidity. Market makers, in turn, would get some fees from the exchange, sources said.
BSE had also proposed shifting all companies to the pre-opening session, where the market can quote rates but no trade takes place. However, this can help the market judge the kind of volatility a stock could generate before trading starts. Sebi has asked BSE to consult NSE before launching such an initiative and, hence, BSE has shifted all stocks that are not traded on NSE to the pre-opening session. Even such scrips are more than 2,000 and around 150 of these get quoted in the pre-opening session.
BSE has very recently improved its technology and now the response time to each trade has improved to just 10 milliseconds against 200 milliseconds earlier. And, this has resulted in a much higher order-to-transaction ratio. The ratio is now 19:1, which means there are 19 trades against one transaction, much higher than the benchmark. Sources said this provided ample liquidity and attracted algorithm trades. BSE can now handle 20,000 orders a second against just 1,000 earlier.
