After BSE’s market share gains, NSE ups its game

As per Securities and Exchange Board of India (Sebi) norms, the value of a lot of derivative contracts should be between Rs 5 lakh to Rs 10 lakh.

In the past year, the Bombay Stock Exchange (BSE) has seen stellar turnaround in its fortunes. From a paltry market share of 0.1% in the future and options (F&O) market, it has now risen to 7.4%.

And industry experts believe that the good run is likely to continue, albeit at a slower pace. No wonder, the big daddy of the segment – the National Stock Exchange (NSE) – has started making changes in its strategies to counter this unexpected challenge.

An NSE official, on the condition of anonymity, said, “We are not in competition with BSE. They have been aggressive last year. We hope to regain some lost market share this year through some new plans.”

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BSE’s rise in the F&O market share, based on the premium value of contracts, has happened in just nine months. Further, the average daily turnover of BSE in options premium segment has jumped over 80% sequentially in January-March, compared to 36% growth for NSE in the same period. The story has been similar through the year.

Amit Chandra, deputy vice president at HDFC Securities says BSE has gained market share largely from the incremental market growth rather than at the cost of NSE. He expects BSE’s market share in F&O segment to stabilise between 15-20%.

So, what led to this sudden change in fortunes? One of the key factors, experts said, was its decision to change the expiry for Sensex F&O contract from Thursdays to Fridays. Analysts said BSE now has a complete dominance in market share on Fridays as NSE does not have any major F&O contract expiry on that day. Following Sensex’s success, BSE moved the Bankex’s expiry to Mondays from Thursdays.

While there is scope for further market share growth for BSE through Bankex, Chandra said Bankex pickup has been slower compared to Sensex because of two reasons. One is that Bankex is a new name and is not as popular as Sensex. Second, he said, is because traders usually avoid keeping positions open over the weekend, and this may hamper Bankex’s volume growth.

BSE’s fortunes started changing after Sundararaman Ramamurthy took charge as its MD and CEO. Ramamurthy, who had earlier been with the NSE for around 2 decades, was not the unanimous choice to replace the then MD and CEO Ashish Chauhan.

In fact, 29% of the BSE’s shareholders voted against Ramamurthy’s appointment while Chauhan went on to take the top job at rival NSE. However, following Ramamurthy’s success in the first year of his stint, market experts and sector analysts have termed it as BSE’s turnaround year.

On its part, NSE has already started making some crucial changes. Over the last one month, India’s largest stock exchange has cut transaction charges by 1% from April, halved the lot size for Nifty 50 F&O contracts from 50 to 25, and launched four new indices.

While the reduction in lot size of Nifty 50 contract was necessitated by regulatory reasons, it will end up helping NSE gain more volumes among retail traders, according to experts. NSE also reduced the lot sizes for two other indices and 54 stocks in F&O segment as part of the periodic reviews.

As per Securities and Exchange Board of India (Sebi) norms, the value of a lot of derivative contracts should be between Rs 5 lakh to Rs 10 lakh.

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Explaining how Nifty lot size cut will help NSE gain advantage over BSE, Chandan Taparia, head – technical and derivatives research at Motilal Oswal Financial Services, said, “Sensex’s lot size is 10, so accordingly the contract value for 1 lot comes to Rs 7.5 lakh. The contract value of Nifty 50’s 1 lot was earlier Rs 11 lakh.”

“We believe miniaturisation of contracts may help in spurting retail participation. This may further gain prominence post the reduction of market lots in derivative contracts by the NSE,” brokerage firm ICICI Securities said.

Some analysts believe BSE may follow suit and reduce lot size for Sensex, and launch some new products to shore up its offerings. In all, an interesting battle lies ahead between Asia’s oldest stock exchange and one of world’s biggest stock exchanges.