We are not into price or competition wars: BSE CEO

How is BSE working on increasing its market share in the derivatives market share — are you betting on product innovation, pricing, or a differentiated approach towards market participants?

More than others, I compete with myself. Then it is a never ending journey, because I always have to be better than what I was yesterday. We are not into price or competition wars. We want better efficiencies, which will deepen the markets. Our focus is on alternate products for the benefit of the society.

We have our clear goals. Deepening and broadening is what we are looking at in terms of derivatives. Automatically, that will culminate into more volumes and more profit, which is what we have seen. Our idea is not a specific number of market share, but a level playing field. Where market participants will decide which exchange is giving them benefit and they trade.

Headwinds being faced with having a level playing field….

We are facing headwinds with having a more level playing field between exchanges and are working very hard in these areas.

The first area is best price execution. While the regulators have clearly directed exchanges that there should be best price execution, some of the brokers still have software which is not providing a level playing field. Because of this, the customers do not get the price advantage of a better exchange, also unilaterally increasing the concentration risk arising from that.

The second area is the issuance of a common contract note, which has somehow been dragging for a while. Hopefully, it should be over by the end of April. These two should provide a much more level playing field.

As a first-level regulator, how is BSE adding more checks and balances in the vetting process for SMEs to ensure better quality listings and avoid cases of malpractices seen recently such as Gensol Engineering?

Regulatory process in every country, particularly in India, is an evolving process. So with every such event, there will be a new regulatory formulation.

With regards to SMEs, many conditionalities have been brought in by the regulator, bringing uniformity between both exchanges. So there isn’t much scope for companies to take advantage of any particular exchange rules. They have to clearly specify the purpose of raising funds, and make sure it is within the permissible end use. If the working component portion is high, or there are frequent key managerial personnel changes, or the promoter’s track record, will raise eyebrows now.

The regulatory process is becoming more and more stringent to ensure that the right people get the funds, which is very important. There are 6 crore SMEs, of which only 1,100 are listed today. There is a long way to go.

How do you expect SEBI’s proposed shift to a ‘Future Equivalent’ method of calculating open interest in equity derivatives to affect your volumes and participant mix?

The proposal of moving to a futures equivalent method of calculating open interest in equity derivatives is to mitigate the risks arising from different options, with various strike prices, expiring on the same day.

Some of the concerns in the industry are about how it will be measured, disseminated, at what frequency, the number against which it will be monitored, and any actions emanating for any outliers. My understanding is that the market is not against netted up numbers with better thresholds being stipulated. The concern was if you gross it up as it defeats the purpose of reducing risks.

I feel the market fully appreciates and understands that the future equivalent method is a good measure and netting up is the right way to go. Some outliers will still be impacted, and they should be impacted. That is the very purpose of regulatory change.

How would SEBI’s proposed separation of clearing corporations’ ownership from stock exchanges affect BSE structurally and its business?

Clearing corporations perform key roles of collateral management, risk management, clearing, settlement, providing interoperability, and identifying risk through the risk reduction model. Currently, they are fully held by stock exchanges.

If it is an independent entity, what benefits the market would reap are the thought processes. The thought processes are really right, but the nuances make life easier or difficult.

So what should be the shareholding? How can it become independent? How can financial independence be ensured? MIIs are all capital guzzlers. They are all fixed cost companies. So who will provide the fixed cost capital? These questions come up.

The jury is not yet out. But the impact on stock exchanges will depend on how it ultimately gets implemented.

What challenges have you faced since taking charge of BSE and what the plans moving ahead?

It was a legacy institution with less morale and motivation because of incurring operational losses in 7 out of the past 10 years, and not making any headway to derivatives. It had low cash market volumes, and older technology, basically more like a rudderless ship.

So, that was the BSE when I came in. The first year’s thought process was making the organisation more vibrant and relevant, and it worked. The second year we said that vibrancy is working and we should do something more. Deepening and broadening of markets was an additional goal. We added more brokers, more FPIs, and more racks in the data centres.

So, in the third year we have decided we will focus on customer delight. Our feeling is that competitions are not local, they are global. There is clear mobility of capital across jurisdictions. Talent across jurisdictions. There is no reason for anybody to stick to any country and any stock exchange.

In such a situation if you have to play a meaningful role, you have to take care of customer delight. It can happen only when you have wonderful infrastructure in place with a good service mentality. So, human infrastructure, physical infrastructure, technology infrastructure, technical infrastructure. These are all the current goals. So, we feel that our journey is well begun.

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