Why shares of Asia's oldest stock exchange zoomed 55% in 1 month; Details

Shares of BSE (formerly Bombay Stock Exchange), Asia's oldest exchange, rallied 10% on the NSE to hit a new high of Rs 4,235 on Thursday's intra-day trade in an otherwise weak market.

Shares of BSE (formerly Bombay Stock Exchange), Asia’s oldest exchange, hit a new high of Rs 4,235, as they surged 10 per cent on the National Stock Exchange (NSE) on Thursday’s intra-day trade after the Securities and Exchange Board of India (Sebi) announced new norms governing trading in futures and options (F&O) to curb excessive volumes in the segment and strengthen the overall framework governing their trade.

Most of the measures are similar to the ones announced by the markets regulator in a consultation paper released on July 30, 2024.

In the past one month, BSE stock has outperformed the market by surging 55 per cent, as compared to the less than 1 per cent rise in Nifty 50 during the same period. In 52 trading days, the BSE stock has zoomed 100 per cent from the level of Rs 2,115, on July 23, 2024.

 

On Tuesday, Sebi had rolled out six key changes in the norms governing trading in the derivatives markets, to safeguard investor’s interest. The markets regulator has tightened the trading rules for futures and options, such as rationalisation of weekly derivatives, and recalibrated the contract size, effective from November 20, 2024, apart from intraday positioning monitoring.

These changes include reduction of weekly expiries, which means that from November 20, there will be only one weekly expiry per exchange. The minimum value of derivative contracts has also been increased to Rs 15 lakh, from the current Rs 5 lakh.

Apart from that, a 2 per cent extreme loss margin will additionally be applied to open short options on expiry days, while upfront premium collection will begin from February 1, 2025.

The regulator has also mandated that offsetting of positions for contracts expiring on the same day (Calender Spread) will be eliminated, while intraday position monitoring will begin from 1 April, 2025.

Post the levying of uniform charges on all customers, a further tightening of regulations governing the derivatives segment will  likely impact volumes and increase the compliance cost for the industry in general and discount brokers specifically, ICICI Securities stated in a note.

The BSE has also scaled up its derivatives market share to 27 per cent/13.3 per cent in terms of notional turnover/premium turnover in September 2024. This has been on the back of product innovation, wherein they launched the expiries on different days, compared to the existing products of the NSE.

A larger market share for the BSE arises out of Sensex rather than Bankex. With the new norms allowing only one benchmark index to be made available for launch during weekly expiry, the NSE and BSE will continue with Nifty and Sensex, respectively. Earlier, since the NSE had an expiry on all days except Friday, the BSE found it difficult to scale up volumes. Nevertheless, the BSE will now have three more days to compete against the NSE.

For the 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 the NSE (Sept 24). With the probability of volumes increasing after the expiry days, this ratio would increase for BSE. This will not only help the company generate more revenues but also bring down the clearing and settlement costs, according to Motilal Oswal Financial Services (MOFSL).

According to the brokerage firm, the BSE should be relatively less impacted in the new regulatory environment, compared to NSE. Furthermore, the exchange has other revenue drivers, such as the co-location segment and new products (commodities and power). MOFSL currently has a 'Neutral' rating on the company's stock.

Meanwhile, the BSE is trading higher for the third straight day and it has rallied 17 per cent after the exchanges hiked and introduced new transaction charges for brokers across various segments, effective from Tuesday, October 1, 2024.

The BSE has raised the transaction fees for Sensex and Bankex options contracts to Rs 3,250 per crore of premium turnover. This adjustment is part of a broader change in transaction fee structures outlined in a SEBI circular from July 2024 for Market Infrastructure Institutions (MIIs). CLICK HERE FOR CIRCULAR

At 11:07 AM, the BSE was trading nearly 8 per cent higher at Rs 4,155 on the NSE. In comparison, the Nifty 50 was down 1.1 per cent at 25,503.

As many as 6.5 million shares had changed hands on the NSE till the writing of this report.