Taking chances has often favoured the bold and Sundararaman Ramamurthy is BSE’s feisty new MD and CEO who has started his stint with a disruptive move. In just three months of taking charge in January, Sundararaman suspended the exchange’s liquidity enhancement scheme (LES), wherein brokers were paid generate volumes in the otherwise moribund derivatives segment. Before Sundararaman took charge, in 2022, BSE saw ₹1.6 lakh crore to more than ₹2 lakh crore worth of daily average derivative trading on its platform, which was mainly backed by LES. But Sundararaman has chosen to give away these volumes and shut its incentive scheme.

“I’m not denying that LES or incentives are not a tool to improve liquidity. For many, it has worked but it does not seem to be working for the BSE,” Sundararaman told businessline’s Palak Shah in his first interview after joining the exchange.

BSE was left behind in the race of market share in India’s stock market as NSE marched ahead and the exchange had relied on LES as a key means achieve some traction. Under LES, brokers gave two way quotes to ensure eyeballs. But Sundararaman feels BSE has seen an overdose of LES.

“BSE’s volumes have not fallen since I joined the exchange. It has been on a steady decline for more than a decade and has come down to 5 per cent from 40 per cent in 2004 and 20 per cent in 2010,” Sundararaman said referring to a graph on a paper based on past 20 years of data. But then what could be the reason for derivative volumes suddenly witnessing 95 per cent dip since January compared to many months of higher volumes in 2022?

“Stopping LES has no correlation with fall in BSE volumes after I joined since I announced halting the LES from April. When I left NSE in 2014, at that time, also BSE’s market share was around 17 per cent. I was away from the exchange space for eight years after that, since I was with Bank of America. In this period, what happened with NSE or BSE, I do not know,” Sundararaman says.

For Sundararaman, it is a second stint at a stock exchange since he worked with National Stock Exchange (NSE) for nearly 20 years, before leaving in October 2014. Many credit him for bringing liquidity to NSE’s Bank Nifty index after several tweaks to the product but critics also attribute its popularity among the trading community to NSE’s monopoly status and no credible competition.

Game plan

Given the circumstances, what is Sundaraman’s game plan for the BSE?

“The other mechanism is product differentiation, which if properly marketed may get traction. Everything is an ongoing experiment currently. Market feedback is that BSE should not have derivative expiry for its indices on the same day (as NSE), any derivative index that BSE introduces should have good correlation with Nifty or Bank so that traders can play a hedge. From tick size to expiry, everything will be tried on a trial and error basis,” Sundaraman said.

Further, he also says that as per his market feedback, traders and brokers want contract size to be small even within the regulatory ambit, to an extent that can bring down margin related hassles, costs and premiums. 

“So to structure a contract with such feedback could take some time,” Sundaraman says.

Regulatory changes

But several regulatory changes post 2010 had put BSE on a deathbed and the exchange’s former MD Ashish Chauhan came up with the idea of several new streams of business segments and improved the technology that saved BSE stave off a shutdown and even got it listed. Was product differentiation not tried earlier?

“Everybody even before I joined, knew the game and they too have worked on many possibilities to revive BSE. But trial and error have to continue. After my meeting with several brokers, I have realised that many brokers are yet to enable or upgrade their software to trade on the BSE,” Sundaraman said.

But unlike NSE’s trading technology that has earned a bad name due to many hiccups in the past few years, BSE’s trading technology is robust and the fastest in the world?

“It is not that brokers do not want to intentionally support BSE but they are busy with too many projects and compliance. We are now trying to get BSE on their priority list. I’m trying to understand the kind of products that the market or brokers want so that they have BSE as their priority. But before you introduce any new product, broker software is required to be tuned-in. We are meeting software vendors and brokers and requesting them to enable their terminals for their clients to trade on BSE. It is the reason we had pushed the launch of certain new products in May,” Sunadaraman said.

In Sundaraman’s view many broker clients do not have BSE terminal linkage or in most mobile apps only NSE is enabled but differential pricing, change in expiry, tick and sizes of trading contracts are important factors that can also draw them towards BSE but he needs more time. “I have just started meeting brokers and I’m expecting to complete at least 5 years for you to see results.”

For the short run, BSE’s stoppage to the LES scheme will directly boost its bottom line since its biggest spending will be curtailed.

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