BSE to incentivise brokers for derivative trades

The Bombay Stock Exchange (BSE) plans to launch a scheme for stock brokers next week, giving them incentives to bring volumes to its derivatives segment, a senior official said. BSE, Asia’s oldest stock exchange, also plans to spend Rs 108 crore in the next six months for the liquidity enhancement scheme.

“We will give money to brokers who come on the BSE’s derivatives platform for trade,” said Ashishkumar Chauhan, deputy chief executive officer, BSE. “This step will be taken to increase our derivative volume, which is less than one per cent in overall business,” he added.

BSE will give Rs 1,050-1,100 to brokers for Rs 1 crore turnover on the exchange’ derivatives segment for both buy or sell orders. The amount will nearly double for market makers, who give both buy and sell quotes.

At present, BSE derivatives volume is abysmal when compared to its counterpart, the National Stock Exchange (NSE). The average turnover for June was pegged around Rs 1.64 crore, while that for July is still lower at Rs 58 lakh. Meanwhile, NSE registers a daily derivative volume of Rs 80,000-90,000 crore.

With this liquidity enhancement scheme, BSE is hoping business in its derivatives segment will increase 20 times. The Securities and Exchange Board India (Sebi) has approved the scheme. “If we succeed, then the exchange will spend more money on it as we are permitted for 25 per cent of net worth or 50 per cent of profit which ever higher,” Chauhan said.

Derivative trading was launched by both the exchanges simultaneously in 2000 and NSE cornered a lion’s share, ostensibly as traders preferred this exchange, as it offered greater liquidity, lower spreads and better price discovery. BSE enjoys 23 per cent market share in the cash segment. It is the derivatives turnover that is a cause for concern, since volumes in this segment are abysmal on BSE, with NSE dominating with almost 100 per cent share.