BSE shares rise over 10% on growing derivative market share

Shares of BSE Ltd, Asia’s oldest exchange, surged more than 10% on Thursday to a day high of ₹2,264 per share. The stock opened 2.5% higher and rose further in the early morning trade. The stock closed 10.8% higher at ₹2,253 per share.

More than 20 lakh shares changed hands on the NSE amounting to a total traded value of ₹442.11 crore. BSE Ltd shares have surged more than 365% in the past year. BSE has zoomed around 4.33 times from its 52-week low of ₹406.2 per share hit on March 28, 2023.

Market share gain in the derivative segment

The BSE shares are witnessing an upward movement driven by its rising market share in the equity derivatives segment. The stock is witnessing strong volumes and a three-fold jump in its options market share on a sequential basis from 4.2% to 15% in March 2024.

For instance, derivative contracts of BSE Bankex, which measure the performance of companies in the banking sector, have seen a significant pick-up in volumes and commands market share of 60% to 70% on expiry day, i.e. Monday.

BSE also saw an uptick in equity derivatives volumes, with the average daily turnover rising to ₹71.14 lakh crore as of December 2023.

No further SGF contribution

In the previous quarter, BSE paid ₹91 crore towards the Settlement Guarantee Fund (SGF) for the currency derivatives segment, which dented the company’s profitability. Its Q3 net profit stood at ₹106 crore, about 20% lower than the market estimate.

However, experts believe this SGF contribution was a one-off cost and is unlikely to recur going forward, which could positively impact profitability in the coming quarters.

Reduction in clearing and settlement charges

Another positive trigger for the BSE is a 30% reduction in clearing charges, which the company pays to the NSE to clear and settle derivative trades. These charges are reduced mainly due to the recent rise in derivative volume on the BSE platform.

Under the interoperability framework, BSE has to pay fixed charges to clearing corporations to clear and settle derivative trades. There are two major clearing corporations in India: NSE-owned NSE Clearing (NCL) and Indian Clearing Corporation (ICCL).

As most of the options volume is settled at the NCL, the charges paid by NSE to NCL come back as revenue in the consolidated financials. However, BSE is required to pay both NCL and ICCL for settlement and clearing charges.

But, the recent shift in derivative volumes in BSE favour has reduced charges for the exchange and is likely to have a positive impact on its margins and profitability.