After commodity derivatives, BSE eyes power trading, insurance distribution

As part of its expansion strategy, BSE has set up a JV with a US-based insurance exchange to start an insurance distribution exchange platform

India's oldest stock exchange, the BSE, has formed a strategy to expand its wings in the trading and distribution ecosystem using its technology and exchange platform. As a part of that, the exchange applied to the energy regulator to set up a power trading exchange, applied to the insurance regulator to start distribution of insurance, and has already received an approval from the market regulator to launch commodity derivatives, which are being launched from October 1. 

INX, an exchange in the Gift international financial centre set up by the BSE, has also received a good response and its daily trading has been over $1 billion. It has launched a few innovative products for commodity derivatives. Gold derivatives have been gaining ground with $300-400 million trading volumes daily. 

Ashish Chauhan, MD & CEO, BSE Ltd, said, "We have good technology and experience in transaction processing and risk management and we would like to be in all those areas where we can leverage this expertise with regulators' permission." BSE's small and medium enterprise fundraising segment, mutual fund distribution, IPOs and insurance are part of distribution, while equity, currencies, bonds-interest rates and commodities are part of its trading segment and are used for risk management.   

BSE and NSE, both, have been allowed to enter commodity derivatives and received Sebi's approval for the same. According to Ashish, BSE has received intention for trading intimation from 442 brokers/members. BSE is launching commodity derivatives, beginning with gold and silver, and has also applied to the Sebi to permit trading in energy contracts like crude oil and natural gas. Metal derivatives will follow in the second phase and later agri commodities. 

As of now, he is not looking for contracts different from existing exchanges and the expiry of the contracts are also likely to match with MCX gold-silver contracts. The idea is to help traders plan for deliveries where they have better pricing. BSE is also making the delivery process simpler compared to the existing one. Further, BSE is not expecting big business initially -- one reason is that in parts of India, some members might not prefer to start a new business during pitru pax, a 16-day period that is considered inauspicious.  

"The response will come gradually," said Samir Patil, head of businesses at BSE. BSE has also sought Sebi's approval for competitive pricing or transaction charges lower than that of the market leader exchange in non-agri contracts. Contracts details and transaction charges details are expected to be approved by the regulator any day before trading is launched.

Whenever permitted, BSE also wants to set up a spot exchange for gold.

BSE's exchange in Gift city, INX, is also expanding its trading facilities in commodities. It has set up a special purpose vehicle (SPV) and 100 per cent wholly-owned subsidiary, India INX Global Access IFSC Limited ("Global Access"), to facilitate access to global exchange markets through a single centralised platform. According to Ashish Chauhan, "Global Access shall provide its customers a unified single-window interface for trading on CME Group Exchanges, thereby decreasing their overall costs of accessing global markets from IFSC GIFT City."

This has opened up a major window for traders in India as many of them trade in gold and other international commodities in pair with first leg of trade on MCX, while conducting the other leg of trade on international exchanges. Indian brokers, through their Dubai or other international subsidiaries, trade in the other leg. Only those traders who are eligible for trading on overseas exchanges will be allowed on Gift Global Access to hedge or trade on CME, but domestic and international trading facilities, both by BSE, will be an added advantage for traders.  

For the power trading exchange, where the Indian Energy Exchange is a market leader, BSE plans to tap the huge power trading demand in waiting. It has already applied to the Central Electricity Regulatory Commission, a regulatory body that also regulates power trading exchanges. There are two such exchanges in India, but the Indian Energy Exchange is the most prominent one. BSE has tied up with ICICI Bank and Power Trading Corporation. However, BSE prefers to be a minority partner and will target 25 per cent equity.

BSE has also set up a joint venture with Ebix, a US-based insurance exchange, to start an insurance distribution exchange platform. Stockbrokers, wealth management advisors and financial institutions can sell life and non-life insurance products on this platform. BSE has already applied to insurance regulator IRDAI for approval. BSE also plans to take a local partner in this venture and will itself be a minority shareholder.   

BSE's plans 

• Plans to cut transaction charges in commodity derivatives
• Over 400 members joining; launching gold, silver from Monday
• Applied for power exchange and insurance distribution
• Gift City-based exchange to provide ‘Global Access’ to Indian commodity players on CME
• Brokers, PMS will be able to sell life and non-life insurance products on insurance segment
• The exchange for power trading proposed