Low premium turnover a challenge for BSE
Subscribe to enjoy similar stories. Mumbai: The stock of BSE Ltd has surged this month on market expectation that it will benefit from a regulatory move to curb options trading, but the exchange’s low options premium turnover could dampen the party. BSE’s stock rose 17% through October to touch ₹4,521.85 apiece on Wednesday, compared to a fall of 1.3% for the Nifty Midcap 150 index, of which BSE Ltd is a constituent.
The spurt occurred after market regulator Securities and Exchange Board of India (Sebi) sought to curb a retail frenzy in options trading by allowing exchanges to launch only one weekly expiry contract from 20 November. Market participants perceive the Sebi curbs on derivatives—such as reducing the number of weekly contracts and higher contract values from next month—will hurt the BSE less than its larger rival NSE, which runs more weekly options contracts at present—four against the BSE's two. But there's a catch.
Analysts also believe the low options premium turnover of Asia's oldest stock exchange could impinge on its transaction revenues. Premium turnover refers to the market value of an option, while notional turnover is the total value of a derivatives contract. For instance, the premium or price of the 81,500 Sensex call option was ₹375 a share (10 shares to a contract) at closing on Wednesday.
The premium value of the call is ₹3,750 (375X10) while the notional value is ₹8,18,750 (81,500 + 375 X10). Premium turnover is key for exchanges because with options, securities transaction tax levied on a seller by exchanges on behalf of the government is 0.1% of the premium. Exchanges also levy transaction fees on the premium and not notional turnover.
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