Equity F&O turnover surge Jan-Mar to aid listed BSE's topline
Apr 6, 2024
The sustained trend of rising turnover in equity derivatives and cash segments of BSE and National Stock Exchange in the quarter ended March is likely to reflect favourably in their topline performance during the quarter. The BSE Ltd is a listed company and its share price has apparently moved up sharply in the last few weeks in anticipation of improved revenue performance on the back of higher transaction charges income. The NSE is not listed.
The whole of the last financial year 2023-24 (Apr-Mar) has seen a doubling of notional turnover in equity derivatives segment of NSE, which is the larger of the two bourses in terms of turnover size. The BSE, on the other hand, has seen its market share in equity derivatives jump to 9.1% in 2023-24 from 0.9% in the previous year, led by relaunch of Sensex derivatives contracts in modified form in May last year followed by change in expiry date. In 2022-23, BSE's equity derivatives turnover was very low.
On the equity cash market front too, the turnover has been on a sharp uptrend in 2023-24. NSE's 51%--and BSE's 55%--jump in cash market turnover in 2023-24 marked a departure from the previous year (2022-23) when the turnover fell 20% on NSE, and also fell 23% on BSE.
Shares of BSE, which are listed on the NSE, was up 30% year to date as of Thursday. Investors have clearly been anticipating the impact of the sustained turnover the earnings performance of the exchange.
In Jan-Mar the equity derivatives notional turnover of BSE rose 54% sequentially to 4,336.45 trln rupees, while the options premium turnover rose still higher by 82% to 2.98 trln rupees. Over 99% of BSE's equity derivatives turnover is in options contracts, while that in futures contracts is negligible.
The BSE was charging a nominal flat fee of 500 rupees per 10 mln rupees of premium turnover till Oct 31. The exchange changed it to a slab based structure from Nov 1 which, along with rising equity options premium turnover, resulted in a sequential jump in transaction charges income from equity derivatives in Oct-Dec. The equity options premium turnover in Oct-Dec jumped 3.1 times to 1.61 trln rupees and along with the slab-wise transaction charge structure it led to the transaction income from equity derivatives jumping to 566 mln rupees from 49 mln rupees in the previous quarter.
Further, in the March quarter, for which the earnings will be disclosed by the BSE this month (April) or next (May), the exchange recorded a 42% sequential rise in its cash market turnover to 5.74 trln rupees. In the December quarter, cash market turnover went up sequentially by just 8.6%.
A sharp increase in volume or turnover is undoubtedly a key lever of topline growth for a stock exchange, according to Prayesh Jain, senior vice president and research analyst-institutional equities, at Motilal Oswal Financial Services. "Given the trend of turnover on its equity futures and options and cash segments, the BSE's transaction charges income would do well," Jain said.
There was a 68% sequential jump in the BSE' consolidated total transaction charges income in the December quarter to 1.66 bln rupees. This was led by a 15% rise in equity cash segment transaction charges to 693 mln rupees, and a 11.5 times jump in equity derivatives transaction charges to 566 mln rupees. The share of equity derivatives transaction charges to total transaction charges moved up sharply to 34.1% in the December quarter from 5% in the previous quarter, and is expected to rise further in the March quarter due to the 82% sequential jump in premium turnover.
In the longer period, that is in the first nine months of 2023-24, BSE's consolidated transaction charges income has jumped 83% on year to 3.31 bln rupees, with 18.6% share of equity derivatives segment. In the corresponding period a year ago equity derivatives segment contribution was negligible.
Clearly, the stock exchanges' topline have gained from the sustained sharp growth in equity derivatives turnover in the last one year. A report by rating agency, ICRA, earlier this year attributed the phenomenon to multi-fold increase in retail investor participation, launch of new index options, miniaturisation of contract and lot sizes, and separate weekly expiries for each index option.
Going forward, volatility in the stock market will determine whether the trend can sustain for a few more quarters. Volatility is a friend of equity traders, and volumes tend to rise significantly during times of volatility. Further, steps like NSE's recent cut in transaction charges in its equity cash and equity derivatives segments, is likely to make it more cost-effective for equity traders.
But there is a caveat. Transaction charges is a key but not the only driver for BSE's consolidated net revenue from operations, given the fact that it made up for 36.7% of the total revenue in Apr-Sep. "The topline growth of BSE has other growth levers too such as listing fees and mutual fund platform," according to Jain.
He further said that profitability could get dragged if BSE incurs high clearing and settlement charges paid to NSE's clearing corporation as a part of interoperability in clearing and settlement on the two exchanges. Jain also said that any sharp increase in settlement guarantee fund corpuses for different trading segments would also be a drag on profitability.
