Reuters is reporting that India’s oldest stock market operator, formally known as the Bombay Stock Exchange, now just calling itself BSE Ltd. is slashing fees to gain ground in new markets, turning currency derivatives into the latest battleground in its long-standing rivalry with the younger but larger National Stock Exchange (NSE).
Since BSE Ltd. opened its currency derivatives platform in November 2013, roughly 5 years behind its rival, the bourse formerly known as Bombay Stock Exchange has garnered 45% of the market share versus the NSE’s 49%, according to Thomson Reuters calculations based on the exchanges data.
BSE Ltd. CEO Ashishkumar Chauhan
“BSE did not have a habit of being successful,” said BSE Ltd. CEO Ashishkumar Chauhan in an interview. “In the past few years we have had significant traction in new areas.” The lowered fees are providing an unexpected boon for currency investors, given the NSE has responded with discounts that can reach up to 50%, depending on certain criteria.
Increased competition could spur development of a market in keeping with the desire of the Reserve Bank of India (RBI), which is keen to encourage the small and medium-sized companies to hedge their currency exposure, which is more important than ever given the uptick in volatility of the currency markets heading into 2015.
Overall derivatives market volumes head-to-head comparison. Courtesy: Forbes
BSE charged harder into currency derivatives markets after signing a deal in 2013 with Deutsche Boerse to its trading platform by paying a fraction of the trading fees generated. Outsourcing the trading platform has allowed the BSE to slash fees. The exchange charged nothing for about a year, but started to charge 2 rupees (roughly 3 U.S. cents) per 10 million rupees worth of trades in December 2014. It plans to raise it gradually to 10 rupees by late this year, still only a fraction of the 110 rupees charged by the NSE.
Mr. Chauhan said the BSE would be “very profitable” at these levels, saying his break-even cost is 4 rupees. “When you start profiteering you end up losing your role, or compromising on your role as a public utility and as a front-line regulator,” he concluded.
An NSE spokesman said price was not the only concern for traders, or the exchange, adding “liquidity in NSE across segments… ensures less impact cost and easy exit for trades.”
Brokers, certainly, hope lower trading fees will drive up trading volumes in currency derivatives at exchanges, which average around $1.1 billion a day, but well below the $7 billion traded in the OTC markets preferred by large firms.
“The currency derivatives market is still in its infancy in India. Competition is good. BSE needs to attract liquidity and more participants. Without liquidity, people won’t risk their positions for lower transaction costs.” Ashtosh Raina told Retuers, head of foreign exchange trading at HDFC Bank.
Earlier this month LeapRate learned BSE is innovating in other ways by entering into an agreement with GIFT City (India’s planned new financial services hub under development) for setting up their operations and shifting their back-end operations in the new domestic finance enclave.
To read a Forbes article on how Ashish Chauhan is Reviving BSE, click here.
To watch a video talking about the launch of Currency and Interest Rate Derivatives Trading at BSE by Shri J.D. Seelam, Hon’ble Union Minister of State for Finance (Revenue), Govt. of India, see below: