BSE MD seeks institutional investors support, suggests bourse’s growth key to keeping NSE in check

BSE Managing Director (MD) and Chief Executive Officer (CEO) Sundararaman Ramamurthy spoke about the concentration risk in the Indian market and the steps the BSE is taking to improve its market share.

BSE MD and CEO Sundararaman Ramamurthy is not holding back his punches anymore. In his initial interactions with the media, the soft spoken but highly articulate 60-plus Ramamurthy came across as conciliatory and even reverent of arch rival and market leader NSE. But NSE’s decision to change the expiry of its Bank Nifty contracts to Friday has changed that equation abruptly. Not surprising, considering that the move will kill market appetite for BSE’s recently launched weekly options in Sensex and Bankex, which also expire on Friday.

Also Read | NSE changes Nifty Bank F&O expiry to Friday: What does it mean for BSE?

Hearing Ramamurthy speak feels like listening to a professor patiently explaining a concept, but there is no missing the sarcasm or the point he is trying to make.

“When you say you are number five or six in terms of market capitalisation…this and that… you are the largest in terms of the number of trades…you put it in WFE and all other forums, but what does it mean really? It is all concentrated in a single venue, in a single segment called equity derivatives, in a single product called index options and in two-and-a-quarter indices...Nifty, Bank Nifty and now to some extent Fin Nifty,” he said in an interview to Moneycontrol.

“With the level of cyber threat and technological glitches today, is this kind of concentration good for the market?,” he asked

Ramamurthy highlighted past instances of technological glitches at the NSE and said that in comparison BSE’s trading platform was far more scalable and faster.

“So you have a far superior technological system that is not used much, and on the NSE you have a system that is overused and prone to technical glitches. So today if somebody has to hit the country, what does he have to do? just hit the NSE. That is such a big risk to the country, right?”

Ramamurthy took charge at the BSE in January this year and has been since engaging with various stakeholders as well as tweaking existing products to help the bourse improve a market share that has been steadily shrinking over the years. No easy task considering that his predecessors have tried out mostly similar things in the past, with little success, except in some pockets like SME and mutual fund distribution platforms. Ramamurthy is aware of the challenges.

“We are not just working with brokers. We are working with investors, brokers, back end vendors, front end vendors, our colocation server team, our algo approval team, to ensure that all the pieces come together,” he said.

Till March, stocks up to a price of Rs 15 on the BSE had a tick size of 1 paise. This threshold was increased to Rs 100, meaning stocks with a price up to Rs 100 would have a tick size of 1 paise. Ramamurthy said this has helped increase market shares for these stocks to 12 percent from 9 percent earlier.

Above all, he is wooing institutional investors whose participation on the exchange holds the key to its fortunes.

“Currently, only 4 percent of institutional volumes come to the BSE. Institutions, by nature, do not place market orders, they place limit orders. If they're placing limit orders they should not be worried about the exchange on which the trades get executed,” Ramamurthy said. He is of the view that institutions should over time raise this to around 20 percent.

He said that once institutions started placing order, other players would start putting in counter orders, thus boosting liquidity in the system

“There are different kinds of market players. Some of them are just watching the screen for opportunities. If you come across large orders or large orders sliced into smaller orders, not too small orders, immediately, their algos start working and they start putting in counter orders to match,” he said.

To attract foreign institutional investors, Ramamurthy said the exchange was in persuading brokers to develop a system which would allow them to issue a single Volume Weighted Average Price contract at the end of the day.

“FPIs are exchange-agnostic, but they require a single contract specifying the VWAP at the end of the day for the shares they have bought or sold. Currently, most brokers are using a single VWAP for one exchange because by default almost all the deals are done on a single exchange (NSE). Their VWAP computation does not take the feeds from both exchanges and compute a single VWAP.

The brokers have understood the issue, the custodians have understood it, and the clients (FPIs) are also fine with it. All parties concerned are working on it because they also understand it is better to have multiple exchanges,” Ramamurthy said.

On the recently launched weekly options, Ramamurthy said the market is warming to the Sensex.

“In Sensex, we provide a complimentary product (to Nifty) which can be traded with an existing product,” he said.

“The market is slowly warming up to the Sensex as a product. We can see that from the spike in trading volumes over the last three expiries. The premium turnover may not be huge…granted, but the number of contracts traded…over one million, and the open interest…over a lakh contracts show that the market is interested,” he said.

To read full interview, click here: