Trying to put BSE on people’s priority list: DG and CEO Sundaraman

Risk taking has often favored the bold and Sundararaman Ramamurthy is BSE’s fiery new doctor and CEO who began his tenure with a disruptive move. Within just three months of taking charge in January, Sundararaman suspended the Exchange Liquidity Enhancement Program (LES), in which brokers were paid to generate volume in the otherwise moribund derivatives segment. Before Sundararaman took over, in 2022, BSE saw 1.6 lakh crore to over 2 lakh crore in daily average derivative transactions on its platform, which was mainly backed by LES. But Sundararaman chose to donate those volumes and shut down his incentive program.

I don’t deny that ERPs or incentives are not a tool to improve liquidity. For many it worked but it doesn’t seem to work for BSE, Sundararaman said guidelines Palak Shah in his first interview after joining the exchange.

BSE was left behind in the race for market share in the Indian stock market as NSE rose and the stock market relied on LES as a key way to gain some traction. Under LES, brokers gave two-way quotes to insure eyeballs. But Sundararaman thinks BSE saw an overdose of LES.

BSE volumes have not gone down since I joined the exchange. It has been steadily declining for more than a decade and fell to 5% from 40% in 2004 and 20% in 2010, Sundararaman said, referring to a graph on a document based on data from the past 20 years. But then, what could be the reason why derivatives volumes have suddenly fallen 95% since January compared to several months of higher volumes in 2022?

The shutdown of LES has no correlation with the fall in ESB volumes after I joined since I announced the shutdown of LES from April. When I left NSE in 2014, around that time, ESB’s market share was also around 17%. I was away from the exchange space for eight years after that, since I was with Bank of America. During this period, what happened with NSE or BSE, I don’t know, says Sundararaman.

For Sundararaman, this is the second stint on the stock market since he worked at the National Stock Exchange (NSE) for almost 20 years, before leaving in October 2014. Many credit him with the liquidity of the index NSE Bank Nifty after several product adjustments. but critics also attribute its popularity among the trading community to the monopoly status of the NSEs and lack of credible competition.

Game plan

Given the circumstances, what is the Sundaramans’ BSE game plan?

The other mechanism is product differentiation, which, if properly marketed, can gain momentum. It’s all an ongoing experiment right now. Market comments are that BSE should not have derivative expiry for its indices on the same day (like NSE), any derivative index introduced by BSE should have a good correlation with Nifty or Bank so that traders can play cover. Everything from tick size to expiration will be tried on a trial and error basis, Sundaraman said.

Moreover, he also says that according to his market commentary, traders and brokers want contract sizes to be small, even within the regulatory framework, to an extent that can reduce the hassle, cost and premium associated with margins.

So structuring a contract with such comments could take some time, Sundaraman says.

Regulatory changes

But several regulatory changes after 2010 had put BSE on its deathbed and the stock exchange’s former MD Ashish Chauhan came up with the idea for several new trading segment streams and improved the technology that enabled BSE to avoid a stop and even put it on the list. Wasn’t product differentiation tried earlier?

Everyone, even before I arrived, knew the game and they too worked on many possibilities to revive BSE. But the trial and error must continue. After my meeting with several brokers, I realized that many brokers had not yet activated or updated their software to trade on BSE, Sundaraman said.

But unlike NSE trading technology which has earned a bad reputation due to numerous setbacks over the past few years, BSE trading technology is robust and the fastest in the world?

It’s not that brokers don’t want to intentionally support BSE, but they’re busy with too many projects and compliance. We are now trying to put BSE on their priority list. I try to understand the type of products that the market or brokers want so that they have BSE as a priority. But before introducing a new product, the broker’s software must be tuned. We meet with software vendors and brokers and ask them to activate their terminals so that their clients can trade on the ESB. This is the reason why we had pushed the launch of some new products in May, Sunadaraman said.

In Sundaramans view, many broker clients don’t have BSE terminal binding or in most mobile apps only NSE is enabled, but differential pricing, expiry change, tick and trading size trading contracts are important factors that can also attract them to BSE, but it needs more time. . I have just started meeting brokers and expect to complete at least 5 years for you to see results.

In the short term, stopping BSE on the LES diet will directly increase his bottom line since his biggest expenses will be reduced.