With no marketshare in derivatives to talk of, the Bombay Stock Exchange wrote out an innovative contract on Friday to find sustainability in the segment: it will pay members to bring in business.
From Friday, December 29, the exchange will offer Re 1 for every lakh of transaction volume that a member brings to its futures & options segment, provided the orders are passive in nature.
Similarly, it would pay Rs 15 per lakh of premium value in the options segment for passive orders.
Passive orders are those that already exist in the system seeking a match compared with actives, which are fresh orders for which the broker pays.
Executed orders will be identified as passive or active based on time stamps assigned by the BSE system.
The trading system is so designed, two orders cannot have the same time stamp.
There is no comparable system at larger rival National Stock Exchange (NSE), which controls almost all of the Rs 80,000 crore per day business.
The head of a large domestic institutional brokerage, not wishing to be named, said NSE may not counter this move.
That’s because it is in a dominating position and doing so would hurt its profits.
For active orders, the transaction cost for brokers will be Rs 1.50 per lakh. And options segment transaction cost would be Rs 20.
“This new pricing scheme is designed to improve depth and liquidity in the BSE equity derivatives segment. It will help shrink quoted spreads and thus reduce impact cost,” the exchange said in a circular on Friday.
Market participants find it a good attempt by the exchange but say liquidity is the key. “Even retail investors will be scared to enter if there is no liquidity, forget about big institutional players. BSE needs to come up with some liquidity provisioning through a market-making arrangement,” said a participant.
The bourse is also set to introduce a mid-month expiry from January 14.
While its derivatives business is negligible, in the cash market, the BSE accounts for 25% of the traded volumes.
Comments