interview | Ashishkumar Chauhan

‘BSE better than others in tech and settlements’

Our rates are the lowest in equities because our tech costs are lower. An open source system is our advantage: BSE CEO

The BSE, Asia’s oldest stock exchange, is eyeing an entry into the commodity segment with contracts in energy, metals and bullion. It aims to garner market share with lower costs and better technology, said MD & CEO Ashishkumar Chauhan. Excerpts from an interview:

With the unified policy regime in place, how are your plans to introduce commodity trading progressing?

BSE had planned to start a commodities exchange in 2015, but then we were told that the regulators will be merged so we did not pursue it at the time. Now since SEBI has announced that we can go ahead from October 1, our plan is to successfully begin as soon as the time comes. We already have all the software and hardware in place and mock trading is going on. BSE has approximately 1,400 brokers, and for commodities itself we have 600 brokers, so we have around 800 brokers in additional. We should be able to expand the market.

We plan to start with commodities like energy, metals and bullion. We also plan to get involved in spot gold exchange, announced recently.

How would you differentiate with MCX and NCDEX having a near monopoly in non-agri and agri commodities, respectively?

It is difficult to manufacture a new type of gold; people will refer to the same kind of gold and so it depends on how you are going to start it. When NSE started, they started to do things differently, but effectively the same stocks were being traded.

You can’t manufacture different kinds of stocks so they just created a new way to trade with new technology. BSE is better than its competitors in terms of technology and clearing settlements and other areas too.

We started currency exchange in 2014, around 7-8 years later than other exchanges but have gained a huge market share in the last three years.

So there are possibilities that people will once again prefer BSE because of the advanced technology, lower cost or combination of factors. Since commodities and currencies are kind of connected in some ways, there are possibilities that those who shifted to the BSE for currency exchange will shift for commodities as well.

When you refer to lower costs, would BSE’s charges be lower than the MCX’s since you are targeting commodities traded there?

Yes, [that is so]. Even in equities we have the lowest rates because our technology rates are comparatively lower. We have a cost advantage because we run on an open source system. But there are many factors [based] on which people decide so we have to wait and see how it goes. It has worked for us in currencies and even interest rate futures. Now we have to see how it works in commodities.

You recently waived off transaction costs on Sensex stocks. What is the impact? How much does the transaction charge account for in total revenue?

It’s a slow process and people will get used to it and see the benefits. There are several layers between the clients and the actual trading. So we have to keep constant watch. There may be a change here or there or we might even have to go back to the original. So that’s how we continue to tinker. Transaction charge is a reasonable component in our total revenue. I think approximately 30% of the revenue comes from transaction charges.

BSE has more than 200 companies listed on the SME platform. Is there any second stage of growth for these SMEs apart from getting just listed?

They [must] go on the main board. If SMEs remain SMEs, then there is something wrong with the overall economic activity. If reasonable-sized SMEs grow to become larger, then you know that India is growing and the platform is providing that benefit for the companies to get on the main board.

Some of them may also not do well, which is bound to happen. SMEs are smaller compared to the main board companies so they sometimes don’t have a stable business model and might not do so well.

So are we past those days when we used to talk about regulatory changes for the SME segment?

No, we still have expectations to make market making compulsory for the entire life [currently it is three years] of the company in the SME segment because we think that gives investors a comfort. Market making has been extremely successful in the SME segment.

Once the regulation comes, which is in the interest of investors, there will be participants who may not like it, because it may put additional burden on them; but overall, everyone gets adjusted. If something is in the interest of the investors, it ends up creating more value for market participants who may actually have opposed it earlier.

Any other regulatory change that you feel is required for the SME platform?

The lot size is ₹1 lakh which we think should be increased to minimum ₹2 lakh or ₹5 lakh so that the small investors don’t come in because it is a riskier instrument. The lot size should be increased commensurately because these companies are difficult to analyse.

The lot size was fixed when SME platform was started in 2012. Since then ₹1 lakh would have probably anyway become ₹2-2.5 lakh.

What are your views on the regulations for futures and options? For long we have been talking of our extremely high cash to F&O turnover ratio.

World over, prudential regulations are [going in] the direction of matching the risk profile of the investor and the instrument. The high ratio has come up because of differential tax rates on various products. Currently the securities transaction tax rate is against investment in equities and they are more favourable to options trading and that is why this ratio has jumped over the last many years.