BSE, Asia's oldest stock bourse, seeks ways to dent rival NSE's dominance

By Santosh Nair and Chiranjivi Chakraborty

 

When Sundararaman Ramamurthy took charge as chief executive officer at BSE Ltd. in January 2023, few expected him to revitalise Asia’s oldest equity exchange. 

 

Fast forward two years, and the market value of the 150-year-old exchange has increased nine-fold, revenues have nearly tripled, and its once dormant derivatives segment has gained ground on its larger rival, the National Stock Exchange of India Ltd., the world’s largest derivatives bourse. 

 

Despite this turnaround, the BSE’s key challenge remains: growing its meager 7 per cent-8 per cent share of India’s daily $11 billion cash equities trading, an area long dominated by the NSE. Tackling this issue is the main focus of the 62-year old leader’s strategy. 

 

“We will leave no stone unturned,” he said in an interview at the exchange’s iconic Phiroze Jeejeebhoy Towers in Mumbai’s southern business district.  

To attract large investors and drive turnover,  he is banking on a recent regulatory change that will help ease record-keeping of cash market trades. Under this system, stockbrokers will issue a single contract note for trades done on both exchanges to replace multiple ones. Another reform that could help is mandating large brokers to offer best prices from both exchanges. A test by the BSE showed that if this practice had been in place over the past five years, volumes may have been 25 per cent-45 per cent higher, he said.

 

While the BSE’s is renewing its focus on lifting cash volumes, bourses globally are gearing up to boost derivatives trading amid rising volatility. In September, Hong Kong Stock Exchange & Clearing Ltd. launched weekly options on its popular technology index, and US exchanges are seeing record derivatives trading volumes.

 

Ramamurthy isn’t the first BSE CEO to challenge NSE’s dominance. His predecessor, Ashish Kumar Chauhan, who now heads India’s largest exchange, introduced new derivatives products and offered incentives for brokers to revive BSE’s equity futures and options segment.  

Building on these efforts, Ramamurthy added weekly options contracts, cut tick sizes in cash trades, while ending broker incentives. The strategy is showing results: BSE’s share in this segment has climbed from near-zero two years ago to 24 per cent by December 2024.

 

But that growth is under threat. In October, the Securities and Exchange Board of India implemented measures to rein in options trading that led to billions of dollars of household savings lost. Analysts predict that the curbs may shrink turnover by as much as 35 per cent, impacting revenue at both exchanges. 

 

The hit could be particularly severe for BSE, whose share price has more than doubled over the past year. Of the nine analysts covering the stock, five have a buy recommendation.

 

To mitigate the impact, Ramamurthy said the bourse plans to expand its index offerings, mutual fund platform, and data subscription products. 

 

BSE is also looking to boost its colocation infrastructure to tap the opportunities provided by the entry of foreign firms including Optiver BV and Jump Trading, as well as domestic algorithm-based firms. 

 

Trades done using colocation facilities — which allow high-frequency traders to place their computer servers next to exchange systems — on BSE’s derivatives segment account for about 65% of the total and 40 per cent of cash volumes.

 

The BSE may also gain from NSE’s long-awaited initial public offering as rules in India don’t allow self-listing. Ramamurthy sees this as an opportunity.

 

“The IPO will boost our volumes. We are looking forward to it.”