The BSE: An Evolving Entity
V Balasubramaniam from the BSE talks about the changes the exchange has undergone in recent years including new technology and a move towards diversification.
The BSE (formerly known as the Bombay Stock Exchange) has witnessed dramatic change in the past few years. New management, new technology, a customer-focused outlook and a clear strategic shift to diversify the businesses of the exchange beyond just equity trading,have all started to have an impact. Central Depository Services (India) Limited (CDSL), which is 54% owned by the BSE, is performing well and pushing into new areas such as dematerialization and the record-keeping of insurance policies and academic credentials. BSE Institute, the 100%-owned education and training subsidiary, is expanding beyond its traditional Mumbai-base and becoming a truly national business.
Revival of the BSE Derivatives Business
Without a doubt, the most dramatic change at the BSE since September 2011 has been the revitalization of the equity derivatives business. This revival did not happen overnight. It required a complete technology overhaul – abandoning a previously used derivatives trading system in favor of a re-vamped and upgraded integrated cash/derivatives system. It also required building back up its derivatives membership ranks with over 400 members in the derivatives segment. In addition, it was helped by the introduction of a new real-time risk management system (RTRMS) and new multi-asset collateral management software (CLASS). Finally, a low-cost cloud solution called Fastrade-on-Web (FOW) was introduced to reduce the initial cost of a new member interested in trying out BSE’s derivatives segment without a big investment in infrastructure.
In addition to all these developments, the new regulatory framework to allow liquidity enhancement incentive programs (LEIPS) for derivatives has undoubtedly had a big impact. The BSE has offered a series of LEIPS programs in index futures and index options to incentivize market-making in order to build longterm liquidity in these products.
The results have been encouraging. BSE’s volumes and open interest in equity derivatives have grown steadily since the fall of 2011. Currently there is an average volume in excess of two million contracts per day. With high participation that continues to grow, the SENSEX index option contract clocks the highest volumes daily (approximately US$6 billion).
BRICS Exchange Alliance
On 12 October 2011, executives from the stock exchanges of the BRICS countries (Brazil, Russia, India and China) convened at the World Federation of Exchanges (WFE) meeting in Johannesburg to sign a memorandum of understanding (MOU) to form the BRIC Exchange Alliance. In the following months, five founding members of the Alliance – BM&FBOVESPA from Brazil, Open Joint Stock Company MICEX-RTS from Russia, BSE Limited from India, Hong Kong Exchanges and Clearing Limited (HKEx) as the initial China representative, and JSE Limited from South Africa – finalized an agreement to expand their product offerings beyond their home markets and give investors of each exchange exposure to the dynamic, emerging and increasingly important BRICS economies.