NSE move to cut charges positive; to expand reach: Experts

The NSE has decided to cut the transaction fees and the annual subscription charges from October 1, both in the cash market as well as the future and options segment. This comes after the new entrant MCX-SX decided to slash transaction charges by 50%. Ravi Varanasi of NSE said this is an endeavour towards providing a cutting edge trading platform to its members at optimal cost. Moreover, this move will be particularly helpful for smaller members in unfavourable market conditions.

Varanasi further clarified that the slashing of fees is driven by request from members and NSE will continue to make efforts to expand its reach.

Deena Mehta of Asit C Mehta Investments is of the view that the BSE schemes failed to grab market share despite having low costs. But, she is excited about the entry of the MCX index and believes it will help promote niche areas that are yet to be tapped.

Looking at the present market condition, Mehta is not very hopeful of seeing volumes improving in the near term.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Tell us about this move that NSE has decided, is it because of the competition brewing in the space and what kind of an increase do you think you can see in volumes because of the cut in charges?

Varanasi: Irrespective of competition NSE has always endeavoured to deliver cutting edge trading platform to its members at optimal cost. This particular initiative has been taken in this particular direction. Effectively, members every year pay an annual subscription charge of Rs 1 lakh to the exchange. Till now this has been a fixed charge. Basically, members were not getting any benefit on Rs 1 lakh which they are paying to the exchange.

Now we have decided to allow Rs 1 lakh which has been paid to the exchange to be set off against the transaction charges which the members have to pay to the exchange. This will effectively benefit all capital market segment members of the exchange, that is almost 1,400 members and essentially this will come in handy for the smaller members in times which are not very favourable.

Q: Do you think with another exchange coming in on board the competition in this entire space will get heated up and in effect will be beneficial for some of the investors and the broker community?

Mehta: Actually I am loving it. We are seeing some excitement in the market with the aggressive postures which are being taken by MCX-SX and the kind of reputation that Jignesh Shah enjoys of going at great lengths to see to it that things really move.

The Jalan Committee report when it came about, it impacted him and the leadership which seems to be emerging out of the MCX-SX bill is going to mark the beginning of really exciting times. I am not very particular about the cost war or a price war because price war favours only big time traders and pro account people. They are the volume drivers. But according to me the bigger excitement will be the new exchange which is likely to expand the reach, the footprint and the number of demat accounts for all the retail investors.

At least somebody has given a commitment to say that in 10 years we will see 10 crore demat accounts. There will be footprint in 5,000 locations. So, somebody is targeting those numbers of expanding the footprint. I think that kind of commitment, at least in words, is something which excites me. I am sure the kind of concentrated business of FII or pro accounts has reduced the volume of most of the brokers.

If we think of expanding the footprint of the market across the country, I think it is really a big business opportunity for all the brokers and for the development of the market also. This is what is really exciting me and NSE is responding. They may say that it is not an answer to MCX but, there will be economies of scale and we will have finer pricing in the markets. This is a good thing for the market. But, at the same time, I think the commitment to expand the market is something which we all are looking forward to.

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Q: First do you think the NSE will have to cut the subscription charges further in order to meet the competitive rates of MCX-SX?

Varanasi: We actually always looked at a bouquet of services, giving the best of technology, best of execution platform and best of services to our members at optimal cost. That has always been the driving force behind NSE’s existence. Today, we have almost 200,000 terminals spread across 2,000 cities and villages across the country.

Almost 50% of the terminals are located in tier II and tier III cities which are essentially smaller places where we have already reached. This has happened over a period and we continue to extend this endeavour to take this reach further. Education has been the basic tool which we have used to take markets to the masses. We have provided technology which allows investors to trade from any of these 200,000 terminals set up around the country.

We have also launched internet based trading where clients can trade essentially from their own homes or offices or wherever. Mobile based trading platform has been launched. The whole idea is to take technology at the lowest possible cost and the trading platform to the investors and help the intermediaries. That is the challenge and we have been trying to live up to this challenge all through.

Q: I would take the point forward about volumes. The primary objective of this entire exercise is to increase volumes or grab a bigger share of the pie but in the market which has been so shallow where there is hardly any retail participation up until now, do you think the volumes will really get a fillip because of what is being done?

Mehta: No, absolutely not. It is not an easy task for MCX because traditionally wherever the volume is, it is very difficult to shift the volumes. For example, if we look at BSE even today in the small and midcap space, BSE continues to have a big volume. People who want to trade in these kinds of stocks, they are with BSE only.

If we look at derivative market though, BSE has launched the liquidity enhancement programme and the cost is almost one tenth of the cost which is being charged by NSE. But, BSE has not managed to overtake NSE. The gap is really very big though it has tried to come forward and get some market share. Again it is not easy to dislodge the positions in each of these exchanges and merely on price people will not shift here or there. The price sensitivity only shifts the high volume traders and others.

Ultimately, there is an end user for our markets, for these services. There is also an end investor. So if you are not going to help that end of investors, volumes are a gateway, they are not the actual business volumes which are happening. I don't think that given the state of the current market, volumes can go up. But, definitely MCX I attended the road show of MCX and they are trying to go for some niche area.

For example, they want to work heavily on corporate debentures, corporate debt. If they go for niche areas and try to promote those markets, there is a lot of scope because world over the debt market is at least 4 -5 times the equity market. There is a niche which is available. Like BSE went in for mutual funds. They continue to have a dominant share so I think going forward, if more things are done by BSE on mutual fund, a lot of business can go over there.

Similarly, MCX is trying to target the corporate debt segment and maybe if they succeed, they will do good for the country and for the country's debt market. The cost can be lower and everyone is trying to get a niche market. Having seen the markets for almost three decades, it is very difficult to lodge a person unless there is a very strong story to dislodge a person which I do not see at this point of time. There is something which will just topple the old thing.

I think the exchange business is like a commodity business. They all offer trading services, they offer frontend. I am not seeing any big change in existing things but, I hope new things will happen.