Now, BSE stares at bleak futures

7 May, 2008, 0226 hrs IST,Ashish Rukhaiyar, TNN

MUMBAI: The already yawning gap in market share between the Bombay Stock Exchange — Asia’s oldest bourse — and its arch rival and number one bourse in the country, the National Stock Exchange, looks set to widen further in the coming days. Reason: the introduction of cross-margining facility between the cash and derivatives segments.

Brokers are of the view that institutional investors will increasingly switch from BSE’s cash segment to NSE to avail of the benefits of cross-margining.

On Monday, Sebi gave the go ahead to cross-margining, under which an investor buying a stock in which he already has a short position in the futures segment will not have to pay the value-at-risk (VaR) margin twice over. Initially, the cross-margining benefit will be only available to institutional investors.

“The introduction of cross-margining has bought both cash and derivatives segment, into play simultaneously,” says a person familiar with the development, adding that institutional investors would be able to benefit from it only if all the transactions are through the same clearing house.

This means that institutional investors looking to avail of cross-margining benefits will now have to trade through only one exchange as India has two separate clearing houses for BSE and NSE. This will bring almost all the investors to NSE as BSE does not have a robust derivatives segment, say industry sources.

This will come as a body blow to the Bombay Stock Exchange that is already fighting a losing battle with the NSE.
Data clearly shows that while BSE has not been able to attract investors to its derivatives segment, on the cash side too, it has been losing market share.

During the start of the current calendar year, BSE’s share in the daily cash market turnover was around 35%, which has fallen to around 30% now. On some days, it was less than 25%.

Incidentally, not many countries that boast of a growing equity market have two different clearing houses. While NSE has its own clearing house (National Securities Clearing Corporation or NSCCL), BSE has tied up with Bank of India to form its clearing house.

The latest development has reignited the age-old debate on whether or not there is a need for two stock exchanges in the country, especially if both are offering the same set of services. Not many countries have two stock exchanges, two clearing houses and two depositories, point out industry experts. Why then should India be any different, they argue. But another section of players is equally emphatic that monopoly is not good for intermediaries and investors.

Incidentally, the recent past is flush with instances where regulators have merged two or more leading stock exchanges in the country to give birth to a large single stock exchange.

In Indonesia, Jakarta Stock Exchange and Surabaya Stock Exchange were merged to form Indonesia Stock Exchange. Similarly, in Australia, the Australian Stock Exchange and SFE Corporation were merged in 2006 to form the ninth largest listed exchange. Also, the Korea Exchange was established in January 2005 through the merger of Korea Stock Exchange, Kosdaq and Korea Futures Exchange. In USA, where both NYSE and Nasdaq operate, companies are not allowed to list on both the exchanges. It can list either on NYSE or on Nasdaq.

via : E.T