Competition makes bourses cut member-fees

MCX offer impels NSE to respond might have to do more, say observers

Stock exchanges are aggressively playing the pricing game. After MCX-SX introduced a lower price structure for membership and transaction charges, ahead of the launch of its equity segment, the National Stock Exchange (NSE) has answered by bringing down the cost for its 1,400 members, allowing them to offset their annual subscription charge of Rs 1 lakh with a transaction fee in the cash segment.

In the futures and option (F&O) segment, the annual offset was already allowed and NSE has now said brokers can carry over their leftover position to reach the offset level next year. However, brokers say NSE will have to do more on transaction charges, as the current move will result in savings of just Rs 1 lakh for its members.

Rough estimates show a mid-sized broker might pay a transaction fee of Rs 5-10 lakh to NSE, which they collect from clients. NSE’s move is to stem the flow of members to rival MCX-SX, which has charted aggressive plans to attract them. The Bombay Stock Exchange already has a significantly lower transaction and membership cost structure.

On Monday, MCX-SX announced transaction charges 36-50 per cent lower than NSE. Its deposit structure and net worth criteria are also set 50-80 per cent lower than NSE. Cutting transaction charges can directly affect the bottom line of stock exchanges (SEs). Around 60 per cent of NSE’s revenue came from transaction charges during 2010-11. NSE’s net profit for 2011-12 was Rs 705 crore, compared with Rs 638 crore the year before. Brokers said MCX-SX’s charges were optimal and NSE might still have to reduce its own.

On Wednesday, NSE said the exchange has been continuously providing state-of-the-art technology and the best of services at an optimal cost. “In 1996, when the cash segment was introduced, it was Rs 10 for Rs 100,000 of any traded value; in 2000, it was brought down to Rs 4 for traded value above Rs 800 crore and Rs 7 for traded value up to Rs 200 crore. It was further brought down in 2005 to Rs 3.50 per Rs 1 lakh for any traded value.

Then again in 2009, it was brought down to Rs 3.25 for Rs 100,000 of traded value up to the first Rs 1,250 crore and Rs 3 for traded value above Rs 15,000 crore. In futures and options, too, transaction charges have been brought down several times. In July 2001, for both futures and options, fees were levied (after an initial waiver in 2000) at Rs 2 for Rs 100,000 of trade,” it said.

NSE is leader in the equity cash and derivative segment, with 80 per cent market share. Hence, it had easily got the premium till now. Trading in the wholesale debt market and interest rate futures has not picked up on NSE and BSE; MCX-SX has claimed it will develop the debt segment.