Deep integration: People walk past the National Stock Exchange in Mumbai. Despite a steady decline over the past year, the bourse’s CEO tells analysts in a earnings call that the market share loss has run its course. — Reuters
MUMBAI: A rivalry between India’s major stock exchanges has entered a high-stakes phase, as they wrestle for control over the derivatives market with potential implications for everything from trading volumes to liquidity flows.
The National Stock Exchange (NSE) of India Ltd is trying to change the expiration for listed derivative contracts from Thursday to Tuesday, a day traditionally dominated by its smaller bourse BSE Ltd.
A shift could help the NSE regain market share from its rival, which has benefitted after curbs by the capital markets regulator hit trading of NSE’s most popular options, pushing traders to look for alternatives at the BSE.
The expiry day wrangling is more than just a turf war. It can potentially reshape India’s options trading by fragmenting liquidity, influencing fee income and forcing brokers to realign their trade execution strategies.
For the NSE, retaining its competitive edge becomes crucial ahead of a long-anticipated listing.
“It will only get more competitive from here,” said Maurya Ghelani, derivatives strategist at Kai Securities in Mumbai. “A lot depends on how the BSE responds, and it may have to contend with ceding some ground back to the NSE.”
Derivatives trading accounts for a significant chunk of revenue for both exchanges, with India attracting global quantitative trading firms like Citadel and Jane Street.
The NSE has seen a steady decline in its market share in the past year as the securities regulator culled highly traded weekly contracts such as the ones on the NSE Nifty Bank Index, prompting a shift towards options on the S&P BSE Sensex Index.
Since the Securities and Exchange Board of India began its latest curbs to halt the derivatives frenzy, the NSE has struggled to stick to an expiration day.
In November, it said it would move it to Thursday for several index derivatives, following BSE’s streamlining of its expiries to Tuesday.
Then in March, the NSE unexpectedly said it would change its expiration day to Monday, putting it ahead of the BSE’s. The move was quickly abandoned as the regulator pushed the exchanges to stick to either Tuesday or Thursday.
The news of a new push for a change to Tuesday came last week. The BSE hasn’t said whether it will stick to Tuesday or consider moving its expiration to Thursday.
The Sebi, which said it aims to protect investor interests and maintain market stability, has yet to announce its decision on the NSE’s request to move its expiry day.
NSE chief executive officer Ashish Kumar Chauhan told analysts in its latest earnings call that the market share loss has “run its course”. Ghelani of Kai Securities said aligning expiry days could lead to new product launches by exchanges and deeper integration among existing ones.
Meanwhile, the National Commodity and Derivatives Exchange Ltd is also planning to enter the fray.
While intensified competition may lead to short-term volatility and fragmentation, some said the derivatives market may benefit in the long run.
“More options will bring more opportunities for the trader community,” said Sahaj Agrawal, head of derivatives research at Kotak Securities. “This could spur innovation and better services for traders.” — Bloomberg
