Speaking to CNBC-TV18 in an interview, Ramamurthy said that the exchange currently has about 525 brokers and is aiming to increase this number to between 600 and 700. At present, around 290 to 300 foreign participants are active on the platform, with a target of reaching 500 over time. To support this, BSE is actively engaging with potential participants to highlight India’s appeal as an investment destination and position itself as a strong entry point.
Commenting on the SEBI approval for weekly expiry, he said Thursday is not a bad choice for F&O expiry, citing past market share gains when it was on Friday.
The National Stock Exchange (NSE) has received approval from capital markets regulator SEBI for Tuesday expiry, while the BSE has been allotted Thursday.
Below is the edited excerpt of the interview.
Q: This is now finally settled, and we have clarity in terms of which exchange has which day. BSE is moving from Tuesday to Thursday. Was this a consultative process in that sense because, as we understand it, I mean, you asked for Thursday.
A: As you would recall, when the regulators decided only one weekly expiry per exchange, an option was given to the exchanges to select their expiry days. NSE chose Thursday, and so therefore BSE, at that point of time, shifted it from Friday to Tuesday. After that, things were going okay, when NSE wanted to shift it to Monday and then wanted a unified expiry, consultation papers came, and it was decided it should be either Tuesdays or Thursdays. Since NSE requested for Tuesday to the regulator in the overall interest of the market, BSE decided to go with Thursday. Thursday is a good day, so we have gone with that.
Q: Did you assess what would happen if you stuck to Tuesday?
A: What is the need? If somebody wants something, it is okay, in the overall interest of the market, we can take Thursday. Thursday is not a bad choice. Thursday has a lot of advantages. Since you are harping on this, let us talk about this.
BSE gained market share when its expiry day was Friday, which is not a very ideal day. What we should recall is, at that point of time, every day there was an expiry day, BSE didn’t have an option but to go for Friday. BSE gained all its initial market share only with Friday as an expiry day. As I was always telling if you have everyday expiry day, every product become expiry day product. The purpose of a derivative contract is not to create lot many expiry day products – it is to give a longer time horizon between expiry, so that people are able to use the product effectively. That is the reason why, when an opportunity came and when options of Thursday was taken by NSE, we took Tuesday,
We are, we were, and we will ever be happy with Tuesday as well and if you look at the international scenario, many of them have their expiries on Thursdays or Fridays. So if you are thinking of relative value trading, Thursday becomes an ideal day. In India, the entire 100% market share was gained with Thursday as the expiry day. Thursday is a very good day. But notwithstanding all that, if somebody wants Tuesday, what is the point in not giving it and taking a better day.
Q: What are going to be the implications, this is all very near term. As you said, you have gained market share consistently, before the November options regulations etc. were announced, and even after that, you continued to gain share in that sense. But with this change, now I am looking at various analysts who track BSE as a stock, all are pencilling in different degrees of loss in terms of options market share. Could you give us your assessment? What would it be?
A: There are multiple points to be considered in this when every day was an expiry day, as well, as you rightly pointed out and as I mentioned, BSE was gaining market share. So is it possible for anybody to take only one contributory factor to the volumes, even presuming Thursday will reduce market share, even presuming, I don’t presume it. Even presuming, is that okay for overall assessment, I don’t know, because there are growth factors. There are market related factors.
And as far as Thursday is concerned, I think I very elaborately told you how Thursday is a better day, because beware, the entire 100% market share in the market was gained with Thursday is the expiry day. There is a very great advantage of relative value trading between economies, which is what is happening today, because markets are becoming global, Thursday appears to be a better and ideal choice.
Q: I would really appreciate a number, you were about 24% share right now. Once these things kick in from September, will you stay at 24%?
A: Multiple points. Has anybody, including you, have ever predicted that with all the analysis that you all have at your hands, that Sensex will grow this way? I don’t think it is that easy to predict anymore. None of you predicted ever any of this. Secondly, I have clarified to you in your own studio multiple times that I don’t run behind market share in derivatives. I am talking about deepening and broadening of markets. My effort to deepen and broaden markets will continue.
We have targets in terms of how many brokers we should have, how many racks we should have, how many FPIs should be participating, what type of premium quality should be there, how many products we should have. This is what we set as our KPIs, and we work towards it. The purpose of derivatives should be served. Market share is a side outcome may not come as economic value of a product.
Q: Could you give us a sense of what actually your share of volumes traded on Tuesday as opposed to Thursday?
A: See, it is not proper to come compare it that way. I will tell you the reason. Typically, in India on expiry days, the products trade more and more so because we had introduced the culture in between of having an expiry day every day. We had one product expiring every day. The products become expiry day products, and they tend to trade more on the expiry day. When we introduced Friday as the expiry – you wanted numbers, so please take it. 85% of the volumes were getting traded on the expiry day. Which is exactly what we were very concerned. Then it becomes nothing but an expiry day product.
The moment we interspersed with days, Tuesday volumes became 45% to 46% the remaining started getting distributed. Certainly, therefore Monday volumes will be slightly more. It used to be around 30% or 25% the remaining got distributed. I was not able to see any nearness to expiry, giving some extra advantage on the days of volumes. I hope I make it clear to you, so clearly expiry and expiry minus one have always been high, even when it was Thursdays and Fridays for BSE.
Friday volumes were exorbitantly high because of the unfortunate culture of everyday expiry and that everyday expiry went away and it became Tuesday. Naturally and necessarily, the concentration from expiry day came down, notwithstanding, still it will have huge value. Theta comes down heavily on expiry day, so there will be greater volumes and expiry minus one because of people taking possession. But the concentrations were not as before. I feel interspersing of the days of expiry is what is more important and that continues to happen with Tuesdays and Thursdays.
Q: Two points – Fridays because there is weakened risk there is that element to consider as well. When we look at these conversations about, well, NSE gains, BSE loses, it may not be as simple, because should you count Fridays – is it going to be as large – risks have gone up quite a bit. The other bit, of course, as people have pointed out, is that most of the algos, etc., have been back tested on Thursdays. So maybe they will need to go back and do that for Tuesday now, so overall volumes drop a little bit is that possibility?
A: In fact, if you look at it that way, more algorithms would have been back tested for Thursday expiry because we are just very nascent. The number of algorithms that need to be back tested for Thursday versus number of algorithms to be back tested for Tuesday in a very new exchange like ours – our numbers will be fairly low. I don’t think the day effect on market works anymore. Algorithms work multiple ways. So it may not be fully correct to say it has to be back tested. Some of them may require a fine tuning.
Q: In terms of the number of clients that you are adding on especially in the derivative space, where are you at now and if you can give us some guidance?
A: We have around 525 brokers now, we want to increase it to 600 to 700. Our concentration is on foreign participants and brokers and racks and our technological capabilities. On foreign participants we have around 290, to 300 foreign participants today participating with us. We want to increase it to at least 500 over a period of time. That’s why we try our best to meet people, convince them as to why India is a great destination. Once they convinced, get convinced of India, why BSE is a good place for them to look at.
In terms of racks, we want to go and increase by another 200 racks, we are working on it, and very soon, we should be able to accomplish it. In terms of product, we are working towards deepening the products, we don’t want only this week volumes – next week, next to next week, on monthly contracts, which are working well. Our efforts are giving us some results. We are working on, also strengthening futures market, which will double up because now the futures will become monthly. We are doing all these type of efforts to deepen and broaden markets. Honestly that is what has brought us market share.
Q: 200 more racks is what you are working on, by when?
A: Our idea is by the end of the current financial year, we should try to achieve it. There are a lot of moving parts to this, because they are capex. There are multiple agencies involved, so timeline, end of this financial year, we should have 200 racks.
Q: Have you heard or has the regulator, SEBI – can you tell us if they are looking at unusual price swings because of what these entities are doing in the marketplace? Is there anything at all which is going on?
A: It’s maybe a question to a wrong person. You are talking about regulatory intervention, you have to talk to the regulators to find out what they are doing. I am a very, very beginner in the derivatives market. Volumes with me in respect of all entities that you talked about are all in very, very early stages
Q: You have not been asked for any data or anything?
A: I have not had any inquiries from anybody on this.
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