NEW CHALLENGER BSE 100 gains derivatives mkt share

Bourse Finally Gets A Product To Compete With NSE Contracts Mumbai: It could be premature to raise a toast, but there are early signs that BSE may have found a derivatives product — BSE 100 Options — that can take on the popularity of NSE's nifty index. It is helping BSE revive its derivatives segment, which has been struggling to match the rival's dominance in this space.      The rise in BSE 100's popularity was on the back of its high (over 90%) correlation with NSE's nifty and MSCI India, a robust liquidity enhancement scheme (LES) — an incentive system for brokers to earn by bringing in volumes — much lower cost of transaction on BSE compared to NSE, and rebasing of the index in May that brought down its value to about 5,000 level. This spurt in volumes is, in turn, attracting new investors, leading to further rise in turnover and even larger number of investors, a virtuous cycle that was missing on the BSE until a few months ago.      The rebasing exercise in particular helped this product "break the psychological barrier of trading a contract at 17,000-18,000 level (the sensex level)," said Arun Kejriwal, director, KRIS, and investment advisory firm. Earlier, BSE was pitching derivatives on the sensex index to take on NSE's nifty, but only with limited success. "Seen from the other side, it (BSE 100) has given the traders a product which is very similar to nifty options, but at a much lower price," Kejriwal said.      In the first four weeks since launch on August 1, daily volumes in BSE 100 options have averaged about Rs 35,000 crore, compared to nearly Rs 67,000 crore in nifty options, the most popular contract in the country. This was nearly 34% of the market leader's turnover. And compared to just a few lakh contracts traded on the BSE just a few months ago, it is now receiving more than 3.5 crore orders per day in the F&O segment.      The high turnover in BSE 100 options is also attracting retail as well as FII brokerages. Last month, ICICI Direct, one of leading retail brokerages, started offering BSE derivatives to its customers while some large FII and retail brokers are also gearing up follow suit, BSE officials said.      The cost differential is also substantial. Consider this: For options trade, for every Rs 1 crore worth of premium, the investor is charged Rs 100 on BSE. However, for the same amount of trade on NSE, the charge is Rs 10,000, that is 100 times what the investor would pay on BSE. Other charges — brokerage, service tax, stamp duty and security transaction tax (STT) — are equal across exchanges. Recently, Ashishkumar Chauhan, interim CEO, BSE, highlighted the fact that the cost of trading on BSE's derivatives segment was 87-99.5% lower visà-vis its competition.      Seen differently, "on a premium worth of Rs 1 crore, one can save Rs 9,900 if it is traded on BSE," said head of a broking house. "At a time when broking revenues are tough to come by, higher savings, combined with liquidity, is attracting more and more traders to trade BSE 100 options," the brokerage head said.