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Low turnover seen denting BSE, NSE financials

Rakesh P Sharma

The Securities and Exchange Board of India's ban on carryforward is expected to severely impact the financials of the country's two premier bourses- the Bombay Stock Exchange and the National Stock Exchange as trading volumes drop drastically.

Both the exchanges account for more than 90 per cent of the turnover posted by country's bourses. Already, more than 15 regional exchanges are on the verge of closure which include Saurashtra (Rajkot), Cochin, Guwahati, Mangalore, Jaipur, Magadh, Indore and Bhubaneshwar on account of low turnover.

Things are expected to worsen from July 2 as heavyweight stocks, which account for more than 90 per cent of the turnover, move into rolling settlement. This would mean a further dip in turnover on the stock exchanges, as there would be no arbitrage opportunities for marketmen. Moreover, volumes from various derivative products would at least take 12-18 months to pick up given the market regulator's tough attitude towards brokers in given new licences till registration fees based on turnover is not cleared.

For stock exchanges income from turnover accounts for a major source of income, which is around 45-50 per cent of the total income of the bourses. The BSE gets Rs 2.50 per 100,000 of turnover on the exchange. While the NSE follows a slab system where it charges Rs 6 per 100,000 of turnover up to Rs 2 billion, Rs 4 per 100,000 turnover greater than Rs 2 billion up to Rs 6 billion and Rs 4 per 100,000 of turnover greater than Rs 6 billion.

Already, in the first two months of the current financial year, the income from turnover business is expected to dip nearly one-third as volumes on the exchanges have already fallen from a high of Rs 120 billion to around Rs 40 billion. The turnover is expected to dip drastically from July 2 and remain low for quite some time till derivative products pick up.

Ironically, delivery-based trading on the stock exchange is mere 12-14 per cent. Falling volumes in turn has generated low margins for the exchanges.

Sadly, even listing fees that account for the second largest component of stock exchanges has remained stagnant. Virtually no new company has been listed on the exchanges in the last two months. However, expenditure of the exchanges have been increasing on account of high cost of technology upgradation set up and rise in administrative expenses.

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