BSE Limited analyst Q&A

Thank you, sir. Ladies and gentlemen, this is now the question -and-answer session. We will wait for a moment while the question queue assembles. The first question comes from the line of Devesh Agarwal from IIFL Capital. Please go ahead.

Good evening, sir, and thank you for the opportunity. Firstly, many congratulations to the entire team on the completion of 150 years of BSE's operations. That's a big achievement. My question in terms of, sir, is on the regulatory developments. If you can help us understand, there are 2-3 developments which are pending. The first one is basically the implementation of gross trading limits, which was proposed by SEBI on Feb '24. Before that, they were talking about separating the clearing corporation from t he exchanges. And for a very long time, we've been talking about common contract note. So on all these 3, what is the development? And if one were to assume what has been proposed in the consultation paper, if that is implemented, what is the impact on BSE for each of these regulations? Thank you so much. First of all, thank you for your congratulatory message. We are very glad and happy that we are part of the system when BSE is celebrating 150th year. As far as your questions are concerned, as you may recall, which I always tell, regulation in India is an evolving setup, and clearly created in a co -creation manner in a consultative basis. In respect of the limits that you talked about, and the segregation of clearing cooperation into an independent enti ty, as you would know, there are consultation papers for which the markets have given their feedback. You also could have given the feedback, I guess, and we also have given our feedback. We have always seen that the regulators consider the feedback and also, they have their own consultation process further and the regulations are evolved. So at this point of time, we have to wait and see how the regulation is going to evolve in respect of the first 2 points. Regarding the third point, on the common contract note, as you would recall, I have always been advocating about level playing field in order to ensure a reduction of concentration risk and benefiting the investors and protecting their interest. Common contract note is one such measure, and it was proposed by the regulators, it must have gone live by 1st of May, that is 30th of April. Since some part of the market participants, notwithstanding that it has been postponed 4 times, still expressed that they would like to do some further testing to check their readiness. Kindly the regulators have considered it and given further time. We are very confident and sure that in the coming months that those testing’s will be completed, and the common contract note will go live.

The next question comes from the line of Amit Chandra from HDFC Securities. Please go ahead.

Yes sir, thanks for the opportunity. So my first question is obviously we have gained market share but if I see in the last 3 months the market share gain has been very impressive. But if I see the mix in terms of the mode of trading, the algo plus co-location together combines to around 68%. But in terms of the mix between algo and co-location trading it has changed over the last 3 months and also if you can quantify what would be the HFT volume in this 68%? And now we have seen the algo volumes have been rising. Is it because more HFTs are now participating in BSE? Thank you for participating in the call. As I always say, at BSE we consider that our market share is 100% in derivatives because we have a unique product. And also, as I always repeat, we don't look into whatever market shares are because the numbers are a result of the efforts with a larger goal. Our goal has been deepening and broadening of markets. When we talk about that, we like to bring in not only the HFT and co -lo players as mentioned by you, but we also want a good mix of others like foreign participants, etc. So what we presume generally is, whatever is coming through co -location is all because of high frequency trades and algorithms. Whether that presumption is right or wrong, we wouldn't know. We don't go by that type of classification. What we track as numbers are how many members we have in the system? How many foreign participants we have been able to increase? How many more racks we have been able to provide? How much of our rack space is being efficiently utilized? These are the numbers we track, and we have found that this strategy of deepening and broadening whereby, we increase these parameters. And we also work with the brokers and other investors to increase their presence on non -expiry days and on contracts other than weekly expiries. This has been very helpful for us and that is the jour ney generally we pursue. We don't go by what percentage individually people have contributed for shaping our strategies.

Amit, that was your question. I am sorry to interrupt. I would request you to rejoin the queue for more questions. Thank you. The next question comes from the line of Prayesh Jain from Motilal Oswal Financial Services Limited. Please go ahead. Prayesh, please go ahead with your question and unmute yourself in case if you are on mute.

Yes. Congratulations sir on completing 150 years and on a decent set of numbers. Just the question on co-location, you were mentioning about the utilization of co-location where we now have efficiency. So where we are with respect to the number of racks an d how many have been utilized and what are the plans ahead on co-location with respect to the addition of racks as well as charging in terms of per order rate. Yes, that would be my question. Thank you sir. Sundararaman R Thank you for your congratulations. At this point of time, as you would know, we started with almost not a great presence in co -location, and then we increased it to some 100 plus racks, and subsequently another 100 and another 100 roughly. Today we are standing at 300 racks approximately. In the 300 racks, the 200 racks have been allocated quite some time befo re and they are most optimally utilized. The recent 100 has been a very recent addition. So the number of people using are increasing day by day while the allocations have happened, and we feel over a period of 1 or 2 more months, they all will get fully occupied and therefore will get optimally started getting utilized. Our intention has always been to assess the market requirement in this space and accordingly build rack to suit their requirements. As you know, we offer 2 classes of racks, 15 kVA racks and 6 kVA racks. That all happens based on our assessment of the market need. Based on whatever needs that we have seen now; we are in the process of implementation of adding 200 more racks in 2 separate tranches. The first tranche should happen in another 3- or 4-months’ time and the next tranche should get completed before the completion of this financial year. We feel at this point of time, this is a good number, that is around 500 racks with a mix of 15 kVA and 6 kVA, probably giving an equivalence of around 65 0 racks is a good number to aspire for, given the number of products we have as a profile with us. Notwithstanding that, we will continue to be in touch with the market to assess their needs and based on that and the feedback that we regularly get, we will be augmenting this area and ensure that the market has the necessary infrastructure available to them for pursuing trading at BSE.

Yes. Sir, just on the part of per order rate…

I am sorry to interrupt, Prayesh, could you please rejoin the queue if you have more questions.

I am just asking the previous question only I had asked it, just asking for the per order rate agreement. Sundararaman R Oh yes, sorry I forgot to reply to that. My apologies. So, at this point of time, we have not been meaningfully charging anything for per order rate. We wanted to enhance the capacity in such a fashion that we could make some meaningful difference by havin g different throttle rates. While we have introduced a throttle rate that is more on a test basis, we are fine -tuning it. We want to introduce systems and procedures which shall be customer friendly, and which will be in line with the expectations of the market in the area of throttle. We will be very soon coming with what type of throttles will suit to whom, and what type of charges would be meaningful to the market and how we will be arriving at. It will be at the appropriate time, appropriate charges with appropriate throttles and it should be soon.

Thank you so much, sir.

Thank you. The next question comes from the line of Sanketh Godha from Avendus Spark. Please go ahead.

Yes. Thank you for the opportunity, sir. Sir, your settlement fees, what you pay to the clearing corporation, if I do the math, till first 9 months, the cost per contract seems to be around Rs. 0.105. Suddenly, it has increased to Rs. 0.16 for the fourth quarter. But if I look at full year, it looks at Rs. 0.11 per contract. So, just wanted to understand the new normal is at Rs. 0.16 or Rs. 0.11 is the cost per contract for settlement fees? Sundararaman R Honestly, I am not able to relate to the numbers that you have told. May I request you to do the math again and offline connect with us. I can explain you what our experience and understanding is. Our idea is that it generally remains somewhere around Rs. 0.10 per contract. But this statement has to be taken with additional information, because when we tel l the contract if the contract size changes or the contract that gets traded on which day of the expiry cycle, they make a lot of difference with regard to the realizations and ultimate margin. So, with regard to the number of 0.16 and 0.11 which you said, unfortunately, I am not able to relate and understand how you have arrived at. So, may I request you to approach us offline with your computation, so that we can explain how we have arrived at our numbers of around Rs. 0.10 and we can understand how you a re arriving at Rs 0.16, and if our understanding needs to be corrected, we shall do so.

Okay, sir. Sir, maybe if I can squeeze one more if okay.

Sanket, we can speak offline, please.

Okay, sure, sure.

Thank you , the next question comes from the line of Madhukar Ladha from Nuvama Wealth Management Limited. Please go ahead.

Hi, good evening, everyone. Congratulations on a great set of numbers. So, 2 questions. One, see, you mentioned SGF, there is a reversal of Rs. 147 crores. And then we have made a contribution to NCL of about Rs. 36 crores, which is resulting into a net re versal of around Rs. 109 crores. I wanted to get a context of this Rs. 36 crores contribution to NCL. And how should we think about contributions to SGF on a recurring basis? If you can give us some colour on this, and is sort of Rs. 36 crores, a quarter, a number to look at? Some understanding here will be helpful. Second, on the clearing and settlement charges, I noticed that our consolidated clearing and settlement charges is higher than our standalone clearing and settlement charges. So, standalone, the number is closer to Rs. 60 crores. Consol is at about Rs. 84 crores. Normally, it should be the other way around. And which is why I think the confusion is there that why this quarter's rate has gone up. So, some explanation, is there something one-off in the consol clearing and settlement charges? Sundararaman R First of all, thank you for your congratulations. The problem for me is, under one question, if you pack multiple questions, I tend to forget what your first question is. So, I think I remember your first question. Let me test my memory. You were talking a bout Rs. 147 crores, Rs. 109 crores and Rs. 37 crores contribution. How you should look at the Rs. 37 crores, if my memory is right. So, here it goes like this. We provided some amount, Rs. 200 crores totally as BSE family towards SGF earlier. Since the capability to use currency derivatives SGF towards this normal SGF of ours in other segments was provided by SEBI, we were able to reverse. But, as you know, the clearing corporations have a requirement to collect a portion of the SGF from the relevant exchanges, subject to the stipulations of SEBI in this regard. Accordingly, a demand of Rs. 37 crore s came from NCL, which has been duly met, and the contribution has been made. The question you have asked is, is it to be taken as the number to be projected for the future? How do we understand this? What is the relationship with which we should take this? Is there a method probably of forecasting? This is what you had in your mind. As I always have told, it is a complex algorithm based on which the amount of SGF gets worked out. There are multiple factors involved in it, because of which a straight relationship with volumes cannot be established and a linear relationship cannot be put in place, which therefore prohibits and prevents and makes it difficult for us to project the req uirements of SGF. The question is, is there any way by which the SGF contributions could be made periodically instead of being ad hoc at some point of time when demand rises? Because of the complexity, we have been grappling with this problem of providing on a periodic basis. Nevertheless, our thought processes are on this, and in case we are able to find a mechanism where we periodically provide instead of on requirement ad hoc we do not provide, it will be helpful. So, that is the answer for the first part. Honestly, I do not remember the second part, so I would request my CFO to answer the second part.

So you are right. Normally, on a consolidated basis, the C&S (clearing and settlement) expenditure should be lower than standalone. It could be because of the elimination of provisions. As we explained earlier, we are not able to relate to these numbers at this point in time. Maybe we can connect offline, and we will explain it to you.

Sure sir. Okay. Thank you and all the best.

The next question comes from the line of Gurpreet Sahi from Goldman Sachs. Please go ahead.

Thank you for taking my question. Can I have two, please? So, very simple ones. First is that I know, sir, we have a unique product which is growing in the derivative space, but overall industry, can I please ask you for some advice? The options industry h as now started to grow after the reforms have been implemented. For the first time in April, it was up. So, how do we see the options industry overall premium growth? That is the first question. And second, from 1st of July, we will have the common contract note. So, what is our expectation of an increase in volumes on back of that? Thank you. Sundararaman R First of all, thank you for congratulating us and for being present. I am not sure I am capable of giving any insight and advice. I can give you what I see more as a commoner like one among you. When I look at the options market, what I am seeing is there is a sort of a consolidation that is happening. From more of an expiry date product, which most of the contracts were trading, because of the multiplicity, and also because of every one day one expiry, the total economic purpose typically which any contract serves, whereby it provide s the capability for people to take a directional view ahead of an event, so as to safeguard what is getting lost. With this consolidation more which has been brought in, rightfully by the regulatory process, today makes the options product somewhat getting more mature than what it was. In the case of BSE, we are clearly seeing that it is no longer an expiry day product. It is spread across the weeks. Therefore, people are able to take a view on market not just for the expiry day, but ahead of it next week, next to next week, next month, etc. If this trend continues, if more products on a monthly basis were to be looked at, then I feel the option industry will be growing more towards an alignment with the underlying market and underlying portfolios, which in my opinion could be a healthier development. Also, if you look at it from an infrastructure perspective, if it is every day expiry, every day the infrastructure being stretched to the maximum, in terms of huge and significant number of orders coming in, r esulting in not so many trades, but lesser number of trades, in a way hogging the infrastructure, tiring it, increasing the infrastructure cost for no gain economically, probably gets addressed by this rationalization that the regulators have brought in. So, this is the direction I see. I therefore see more meaningful use of options, more meaningful products continuing to grow in the coming future is what I am able to see as a result of all the actions. In terms of common contract note, what I feel today is every FPI or every domestic institutional investor would like to ensure that their acquisition price is minimal, and their selling price is maximum based on what is available in the market. And there are 2 marketplaces, always because of multiple factors , there is a price difference. If the orders were to be sliced in a fashion where the best price is always taken in the next part of that order, then the objective which I stated before could be nicely met. In that direction, a common contract notes which does not differentiate between the exchanges, which is able to provide a single V-WAP, enabling the institution to allocate it across multiple schemes and therefore brings in economies and deficiencies is a very good move. I feel when that happens, the market will overall grow because institutions will be liking to approach both the venues. Therefore, there will be more players in the market who will use algorithms which use both the marketplaces resulting in overall growth of the pie, increase in liquidity, lesser impact cost, lessened bid-ask spread. In a way, it could be a win-win for the market is my view at this point of time.

Thank you.

The next question comes from the line of Abhishek Leekha from Nestle Wealth Llp. Please go ahead.

Yes, hi. Thanks for the opportunity, and congrats to the entire team for covering 150 years, and excellent set of numbers. Just want to understand from here on the dividend policy, because I have seen like over the past 1 year, the dividend percentage to net profits has gone down. So, what is the future outlook on that? Sundararaman R So, dividend is a function of earning, and also a function of opportunity available for reinvestment and providing better results for the coming years. In terms of numbers, if you see, the total amount of dividend paid in the last 3 years, last 3 dividends I have been part of this journey. I have found that the dividends that we have been paying has always been going up. The first year when I joined, it w as Rs. 154 crores. In the second year, I gave Rs. 204 crores as dividend post my shareholder's approval. In the third year, we are proposing Rs. 316 crores. If you look at it in the last 2 years, the dividends have doubled. This is on one side. And also, we have been creating reserves in order to ensure 2 things. We are in the process of infrastructure building from the place where we were. Today, if we are delivering what we are delivering, it is thanks to the infrastructure that we have built. We spent around Rs. 500 plus crores till now on technology and related aspects. And if you look at it, that has paid us well, more than that number already it has earned for us. Secondly, the balance sheet is continuing to grow. It gives confidence if somebody wants to use our clearing corporation. While in the exchange area, our reserves have become very evident, and the market support has become very prominent. In the area of clearing, still the number of members for which my clearing corporation is clearing and settling is very low. We have enhanced our capacity so as to ensure that we can handle multiple and almost all, even, if need be, biggest players of this country in our clearing corporation without any problem. That is the type of capacity that we have built. If in this process, we are able to achieve enabling more and more members, use our clearing settlement system, then my balance sheet should be big enough to give confidence to such big players. So it is very essential for me, while I continue to pay higher and higher dividend, while I continue to spend money on infrastructure building, I also continue to create a very healthy balance sheet whereby it exudes confidence to people who want to use our clearing and settlement system. With these multiple objectives in mind, our representations are heard by the Board and the Board, in their wisdom, decides what should be the dividend. And if you look at the dividend percentages also, has been significant and the numbers, as I told you, have doubled in 2 years, and that will be paid based on the shareholder approval.

Fine. Thanks for the explanation. Thank you so much.

The next question comes from the line of Marcel, an individual investor. Please go ahead.

My question is that our profit before this corporation clearing charge has really increased. So is it sustainable, number 1. Number 2, in the same context, this corporation clearing charge is completely distorting the net result. In one quarter, it is Rs. -147 crore. In one quarter, it is Rs. 100 crore plus. So is this phenomenon over or is it going to again continue in the June quarter also regarding this exceptional item from the corporation clearing charges? Thank you so much. On your question of sustainability of our operations, yes, indeed. In order to ensure the sustainability is what we are working very hard. How sustainability can be ensured? It has multiple parts to it. One is the product part. As you know, we always continue to work on improving our product, our new products that we have brought in are doing well. Second is the market part. For the market part, we are deepening and broadening our market base, which I hav e multiple times repeatedly talked about, passionately telling how we are increasing our deepening and broadening of markets. Third is infrastructure creation. Infrastructure is physical, technological, technical, human resources, talent building, talent a cquisition, talent grooming, talent retention, all comes under our infrastructure acquisition. We are going ahead with clear plans, clear strategies and implementing all of them. We wanted to bring in vibrancy as the first goal. Then we added deepening and broadening of markets and then we have added now customer delight as our third one, and theref ore we are progressing in this direction only to ensure that we have resilience. As far as your settlement guarantee fund number, I have multiple times talked about how we are not able to linearly project this number and come to a situation where we say this is what is going to be the number. Notwithstanding, as I just told a few minutes before, we are trying to see whether we can have some methodology whereby we are able to bring in some sort of, what should I say, predictability to a number by allocating some number regularly and restricting the ad hoc numbers to wherever it is required only. Whether we can do any such thing, we are also working on, let us see whether we are able to succeed or not.

Sir, like in the last call also I mentioned that although you have started this new series of options, and this is like a future, but many brokers have not onboarded the BSE terminal for this future on option like for example Shoonya, like for example JM F inance. They have not even activated this BSE future on option series, number one, BSE Exchange future option. Number two, even some brokers are, if we are dealing in the future of NFO, they are not charging anything or they are charging nominal charge, Rs.5 for example, per future lots. But here, for BSE, if you trade anything, any future lots through BSE, they are charging Rs.20. So, they are discouraging that people should not trade in the future through BSE, but they should go for the NFO, like for the NSE only. So, sir, can you take some pragmatic and real action with the Chairman or the CEO of each of these big brokers from your level, so that the proper instruction passes from the pyramid, like from the top to the down in the broker, although you can say like this new Generation broker or this discount broker, whosoever it is, so that way we can get much more volume in the future on option, and that will really skyrocket the earning of BSE in the ensuing quarters. So, it needs some direct intervention and direct meetings from you, sir, to the CEO or the MD of the respective big, for example, top 10 broker Company in India, for example. Sundararaman R Sure. Thank you for the suggestion. Point noted. We will analyze and look into whether there are any major brokers who are not yet providing, and we will talk to them if they are overcharging. Thank you for your time.

I am telling you, sir, like for JM Finance, NFO is only Rs.5, but for the BSE, they are Rs.20. In Shoonya, they didn't even activate yet. Although, as I mentioned, sir, it needs intervention. Your team is not able to do it, sir. Please do something from your end, sir. Sundararaman R Thank you.

Thank you.

Thank you. The next question comes from the line of Deepak Ajmera from IGE India. Please go ahead.

Yes. Thanks for the opportunity. If the exposure norms that draft paper is issued recently, if that is implemented, what I understood is the delta -based exposure norms can reduce or the overall option volume significantly, if it is implemented and can impact anything severely, but what will be the impact for BSE assuming if the same is implemented? Thank you. As I mentioned very clearly and very elaborately in the answer to my first question, it is at the consultation stage, regulations in our country are co -created on a consultation basis. Market participants have opined about the net and gross. So at this point of time it will not be fair on our side to imagine anything and speculate and say that this is what is going to be implemented. We need to wait to see what is going to be the direction of the market participants' view and based on which what is going to be the regulatory view. Regulatory view would be paramount, because regulators have access. So all the viewpoints of all the market participants, since we have all submitted our views. Let us wait for the outcome from the regulators in this area.

Thank you, sir. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anand Sethuraman to give his closing comments.

Thank you everyone for joining us on this call today. And thank you Allerick for moderating this call. Should you have any further questions, please feel free to reach out to us at bse.ir@bseindia.com. Thank you everyone.

Thank you so much, sir. It was my absolute pleasure too. Ladies and gentlemen, on behalf of BSE Limited, that concludes this conference. You may now disconnect your lines.