NSE ups ante on gaining traction in currency derivatives

Market leader NSE extends discount offerings as rival BSE closes in

The competition in the Rs 20,000 crore-a-day currency derivatives space is heating up. The National Stock Exchange (NSE)’s numero uno position is being challenged by the BSE with low transaction charges.

The market share gap between the two has narrowed to less than six percentage points, compared to 28 percentage points a year ago.

To protect its turf, NSE has been extending incentive schemes to market participants.

NSE, which levies a transaction charge of Rs 110 on turnover of Rs 1 crore, saw its market share erode almost 60 per cent in October last year to below 50 per cent in March this year. During the same period, BSE has seen a sharp increase in market share from 28 per cent to 43 per cent. BSE charges only Rs 6 per crore of traded value.

BSE has been able to lure participation by offering attractive charges, say market players.

Erstwhile market leader Metropolitan Stock Exchange (formerly MCX-SX) now has a market share of only six per cent, data compiled by Business Standard showed.

On an overall basis, the currency derivatives segment has seen a sharp expansion in trading activity in the past year, thanks to lifting of certain regulatory curbs.

The average daily volumes in the segment have jumped 77 per cent to Rs 31,928 crore in March 2015 from Rs 17,012 crore in April 2014.

Recently, NSE announced it was extending discounts offered on transaction charges till May. It also widened the net for applicability of the discounts.

The discount rate, which starts at 25 per cent, goes progressively higher up to 59 per cent as the amount of traded value increases. The NSE circular announcing the revision in charges said the aim was to improve liquidity in the market.

Discounts are being offered to attract clients, said an NSE spokesperson. “NSE has designed the transaction fees structure only to encourage people to grow their interests in this relatively new segment. Additional participation would in turn help lot of hedgers in the exchange traded market, as well as, the same will ensure a better price discovery process,” the spokesperson said in response to an email query.

Commenting on the market share data, the exchange highlighted its share in the futures segment has remained consistent at 54 per cent. The currency options segment has seen BSE take big strides.

Market players said the incentive schemes were aimed at generating high volumes and, at the same time, ensuring participants stay loyal.

“What the exchange is saying is, if you are a big volume-provider, then you will be compensated accordingly through the incentive system. That encourages traders to continue with the same exchange. Once traders are used to lower fees, they are not going to move to another exchange,” said Vikas Vaid, product head (commodity and currency), Prabhudas Lilladher.

Industry players say defending NSE’s market share has become challenging due to BSE’s low-cost structure.

“BSE has an edge over NSE because of the cost factor. BSE’s charges do make it a preferred platform, as the technology on both exchange platforms is comparable,” said a senior official with a domestic brokerage firm.