Competition between stock exchanges in India is benefiting stockbrokers. Their overhead costs are coming down as the country's largest bourse, the National Stock Exchange (NSE), today took yet another step to keep members happy. After allowing brokers to off-set annual membership fee of Rs one lakh with transaction charges, the NSE has now cut connectivity cost by 50 per cent.
However, brokers say that use of VSAT and leased line technology is on a decline as most prefer Internet-based trading.
NSE's move comes after its rival MCX-SX announced lower transaction and membership charges. The Bombay Stock Exchange already has a significantly lower transaction and membership cost structure. In a release today, the NSE said it was revising charges for leased lines and VSAT (very small aperture terminal), used by brokers to connect to the exchange trading platform, which will benefit small and medium-sized members.
"The annual recovery charges for “A” category (40 messages) entry level leased line and “S” category (Connect2nse) leased line stand reduced by 50 per cent from the existing Rs.1 lakh annuly to Rs.50,000 with effect from October 01, 2012," the NSE said.
Additionally, the VSAT recovery charges are being reduced by 64 per cent from existing Rs. 1 lakh per annuly to Rs. 36,000 for VSAT (Option I). Similarly, they are being reduced by 76 per cent to Rs. 23,500 for VSAT (Option II) under the shared hub VSAT network model with effect from February 01, 2013, said NSE.
Last week, MCX-SX had 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.
Last 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 one 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 in India and MCX-SX has claimed it will develop the debt segment.