Why is the BSE stock exchange upset over the new Sebi order? An explainer

The BSE stock was in the spotlight on Monday following Sebi’s directive to the company to cough up option turnover fee as per ‘notional value’.

BSE shares on Monday fell 18.6 per cent to a low of Rs 2,612 in intraday trades on the National Stock Exchange (NSE), after market regulator Sebi directed the Mumbai-based exchange to pay supervisory fees on option turnover, including payment arrears and interest charges within one month.

Sebi’s directive

BSE (Bombay Stock Exchange) said in a stock exchange filing that SEBI has asked BSE to pay the supervisory fee on annual turnover, taking into account the ‘notional value’ in case of option contracts.

The letter from Sebi states that BSE has been further advised to pay the differential supervisory fee (including differential supervisory fee, if any) for the past periods along with applicable interest (i.e. 15 percent per annum on the amount remaining unpaid or late or underpaid for each month of delay or part thereof to the Board) within a period of one month.

In recent years, BSE paid the supervisory fee based on annual turnover, taking into account the premium turnover of options.

Difference between ‘premium turnover’ and ‘fictitious turnover’ explained

Simply put, options premium turnover is calculated based on the premium at which the specific contract is trading multiplied by the option contract size.

So for example, for a Sensex option contract of 75,000 Call, if traded at Rs 100, the premium turnover would be Rs 1,000 as the Sensex option contract has a lot size of 10. On this basis, BSE paid the required turnover compensation Rs 2,000 (buy + sell)

Sebi, however, wants BSE to pay the turnover fee on a ‘notional value’ basis. Which in this case would be 75,100 multiplied by 10 = Rs 7,51,000, so the turnover would be Rs 15,02,000 (buy + sell).

The calculation value is always higher than the premium turnover, so a higher expenditure as compensation if the calculation sum is used as a basis.

Sebi’s supervisory fee is 0.000012 percent of annual turnover.

Is Sebi right to do this?

According to the Securities and Exchange Board of India (Stockbrokers) Regulations 1992, ‘turnover’ is defined as follows:

(A) The expression ‘turnover’ includes the value of the transactions executed by the stockbroker on the relevant segment of the recognized stock exchange and of the transactions settled upon expiry of the contracts.

(B) In the case of option contracts, the ‘turnover’ is calculated on the basis of the traded premium for the option contracts, and in the event that the option is exercised or assigned, it is additionally calculated on the basis of the notional value of the option contracts. exercised or assigned.

What does BSE have to say about this?

BSE said it is currently evaluating the validity, or otherwise, of the claim as per the Sebi letter.

The stock exchange further stated that if the said amount is found to be payable, the total differential Sebi regulatory costs for the past periods i.e. from FY 2006-07 to FY 2022-23 would be approximately Rs 68.64 crore plus GST , including interest of Rs 30.34 crore. READ MORE

Meanwhile, experts believe that BSE has been a stock exchange and a regulatory body itself, which implements the norms set by Sebi, is unlikely to challenge the market regulator’s order.

Experts add that today’s sharp decline is a knee-jerk reaction to the regulatory news, as shares have risen more than 500 percent in the past year.

HDFC Securities assesses the impact and likely resolution

HDFC Securities, in a note on the regulatory setback for BSE, said the exchange will have to pay a supervisory fee of around Rs 1/2.5/3.1 billion, which would amount to around 13/21/22 percent of the fiscal year 24/25 are. 26E adjusted PAT (profit after tax).

The brokerage firm, meanwhile, recommends that BSE can offset the impact of higher regulatory costs by increasing transaction costs by about 25 percent and reducing clearing costs by about 10 percent. Based on this, HDFC Securities’ calculations suggest a reduced impact of around -5/-2 percent for FY25/26E.

First print: April 29, 2024 | 11:50 am IST