Sep 22, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THE bulk-deal counter on stock exchanges has been witnessing a frenzy of activity over the past couple of weeks as foreign institutional investors (FIIs) shuffle their assets in the wake of the global turmoil. A few FIIs are altogether exiting their positions in India while many others — not registered in India — are changing their asset managers, fearing solvency issues.
The tsunami that has struck US financial markets has already wiped out two high-profile investment banks and forced others to seek either a buyer or a Federal bailout. Given the nervousness in markets worldwide, clients are deserting their brokers and asset managers whom they suspect will not last out the ongoing storm.
Data published by the Bombay Stock Exchange and the National Stock Exchange reveal that leading funds like Morgan Stanley, Merrill Lynch, Goldman Sachs and Deutsche have been flooding the bulk deal counter with sell orders on several stocks in their portfolio. Within the space of a few days, this has run into a few thousand crores as the table above shows.
Then there are the individual clients and hedge funds who invest in India through participatory notes, issued by foreign institutional investors who are registered with the market regulator. These players too are either liquidating their assets or shifting them to more financially-sound investment banks.
“Due to the turmoil in global markets, many P-note holders are relocating their shares from one foreign fund to another who they think is on a better wicket,” says Rahul Rege, CEO of Centrum Capital, a domestic broking house. Most of this is being done through bulk deals.
Other broking officials point out that many hedge funds are raising their cash holdings since they aren’t sure where markets are headed from here. But it is not as though brokers are falling over each other to grab this business.
“Earlier, we used to get a lot of (broking in general) business from Merrill and Lehman among others, and so at times, we used to do their P-note transfer at discounted rates,” said an institutional dealer who did not wish to be named. “But now, since they do not give us volume (broking volumes have fallen drastically since January), it is not feasible to offer discounts for the purpose,” he added. But still, this dealer said, in some of the deals that were witnessed, this commission as been as low as 2 paisa — a brokerage of only Rs 2 lakh for a deal worth Rs 100 crore.
Consequently, these transactions are a drag on the profits, the dealer added. Another new trend is that most of the shares that are being now offloaded are by American entities like Lehman and Merrill and this is being swallowed by Europe-based funds, say dealers.
Saturday 1 November 2008
Pay in bulk, cut your transaction fee
Broking Cos Take Money From Clients Upfront, Who Then Get To Trade At A Discount
Sep 19, 2008
Ashish Rukhaiyar & Benny Antony
MUMBAI
RETAIL broking firms, staring at shrinking revenues due to the sustained downtrend in stock prices, have now come up with a new way to generate cash for their business. Some of the broking firms have started approaching their customers with the concept of ‘advance brokerage’.
In this, the client pays a certain amount of money upfront and then trades without paying any brokerage on individual trades. Depending on the quantum of upfront payment, the customer also stands to gain by way of reduced brokerage.
The concept works like this. Say for instance, the customer pays Rs 10,000 as a one-time deposit to the broker. The customer can then trade without paying any brokerage charges as long as his total brokerage outgo does not cross his deposit limit. It is a sort of win-win situation for both the client and the broking house. The outfit is able to garner a sizeable amount of money upfront and the customer gets a discount in transaction charges.
The customer, moreover, can continue trading after exhausting his deposit limit by making another lumpsum payment. The discount in brokerage, interestingly, directly corresponds to the quantum of deposit that the customer is ready to shell out.
Leading broking firm Religare has a scheme called ‘Trump Account’ for its online customers. Under this scheme, the customer can pay Rs 2,500 as ‘cost of subscription’ and trade for 12 months, during which the brokerage on delivery trades would be 0.25% while that on intraday trades would be 0.025%. If the customer is ready to shell out Rs 15,000, then the brokerage comes down to 0.15% for delivery trades while those on intra-day trades falls to 0.015%.
Broking outfits, through such schemes, are able to woo customers away from other brokers that charge higher transaction fees. Networth Stock Broking V-P (sales) Deepak Mehta says more brokers are coming out with such schemes as it helps them in “generating a decent amount of money at one go,” and are also able to “offer competitive rates to clients.”
Another Mumbai-based outfit claimed that they had a similar offer some time ago but had to close it due to software glitches as well as lots of complaints from customers. An official from the broking firm said, this offer requires a dedicated software. Besides, they also received a lot of complaints from clients regarding discrepancies, due to which they had to discontinue.
Sep 19, 2008
Ashish Rukhaiyar & Benny Antony
MUMBAI
RETAIL broking firms, staring at shrinking revenues due to the sustained downtrend in stock prices, have now come up with a new way to generate cash for their business. Some of the broking firms have started approaching their customers with the concept of ‘advance brokerage’.
In this, the client pays a certain amount of money upfront and then trades without paying any brokerage on individual trades. Depending on the quantum of upfront payment, the customer also stands to gain by way of reduced brokerage.
The concept works like this. Say for instance, the customer pays Rs 10,000 as a one-time deposit to the broker. The customer can then trade without paying any brokerage charges as long as his total brokerage outgo does not cross his deposit limit. It is a sort of win-win situation for both the client and the broking house. The outfit is able to garner a sizeable amount of money upfront and the customer gets a discount in transaction charges.
The customer, moreover, can continue trading after exhausting his deposit limit by making another lumpsum payment. The discount in brokerage, interestingly, directly corresponds to the quantum of deposit that the customer is ready to shell out.
Leading broking firm Religare has a scheme called ‘Trump Account’ for its online customers. Under this scheme, the customer can pay Rs 2,500 as ‘cost of subscription’ and trade for 12 months, during which the brokerage on delivery trades would be 0.25% while that on intraday trades would be 0.025%. If the customer is ready to shell out Rs 15,000, then the brokerage comes down to 0.15% for delivery trades while those on intra-day trades falls to 0.015%.
Broking outfits, through such schemes, are able to woo customers away from other brokers that charge higher transaction fees. Networth Stock Broking V-P (sales) Deepak Mehta says more brokers are coming out with such schemes as it helps them in “generating a decent amount of money at one go,” and are also able to “offer competitive rates to clients.”
Another Mumbai-based outfit claimed that they had a similar offer some time ago but had to close it due to software glitches as well as lots of complaints from customers. An official from the broking firm said, this offer requires a dedicated software. Besides, they also received a lot of complaints from clients regarding discrepancies, due to which they had to discontinue.
Sebi may extend ASBA facility to rights
Move Prompted By The Success Of ‘Application Supported By Blocked Amount’ Concept In 20 Microns’ IPO
Sep 15, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
THE Securities and Exchange Board of India (Sebi) is all set to take the Application Supported by Blocked Amount (ASBA) concept — where money does not leave the applicant’s account when he applies for shares in public issues — to the next level.
After tasting success in the public issue of 20 Microns where nearly 10% of the retail bids came through ASBA, the market regulator wants to extend the facility to other types of issuances, including rights issues. Merchant bankers and registrars, who are handling rights issues, say that Sebi has asked them to incorporate ASBA in the forthcoming issues.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription by cheques. Currently, the facility is available only for retail investors bidding at the cut-off price.
Investors have to submit ASBA, physically or electronically, to the banks where their accounts are maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the applications, as the case may be. ASBA also does away with the refund process, besides reducing the time between an issue and its listing, since the listing happens only after refunds are done.
“The intermediaries are in discussions with the regulator about the feasibility for extending the ASBA facility to right issues too,” says MV Ramnarayan, director of Intime Spectrum Registry, one of the largest share registrars in the country. He says that the successful execution of ASBA during the recent IPO of 20 Microns has convinced many of these intermediaries about its viability.
Intime is slated to handle the forthcoming, high-profile rights issue of Tata Motors which is looking to raise Rs 5,000 crore from the existing shareholders. Some of the other rights issues, which are expected to hit the market in the coming days, are Hindalco, Bharat Forge, Sadhna Nitrochem and Restile Ceramics.
The public issue of 20 Microns was the first issue where ASBA was tested and, according to Sebi, 9.70% of the retail applications (2,426 out of 25,003 applications) were ASBA. Merchant bankers said that ASBA would really pick up when more banks join the list of Self Certified Syndicate Banks (SCSBs) making them eligible for ASBA.
Keynote Corporate Services director (investment banking) Uday Patil feels, “ASBA would go a long way in helping retail investors who earlier had to wait for days to get refunds.” “ASBA can be viewed as the first step toward complete electronic handling of issues,” says Mr Patil.
He, however, feels that more banks need to get empanelled with Sebi for offering ASBA. Till date, 10 banks have launched ASBA facility, including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
Sep 15, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
THE Securities and Exchange Board of India (Sebi) is all set to take the Application Supported by Blocked Amount (ASBA) concept — where money does not leave the applicant’s account when he applies for shares in public issues — to the next level.
After tasting success in the public issue of 20 Microns where nearly 10% of the retail bids came through ASBA, the market regulator wants to extend the facility to other types of issuances, including rights issues. Merchant bankers and registrars, who are handling rights issues, say that Sebi has asked them to incorporate ASBA in the forthcoming issues.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription by cheques. Currently, the facility is available only for retail investors bidding at the cut-off price.
Investors have to submit ASBA, physically or electronically, to the banks where their accounts are maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the applications, as the case may be. ASBA also does away with the refund process, besides reducing the time between an issue and its listing, since the listing happens only after refunds are done.
“The intermediaries are in discussions with the regulator about the feasibility for extending the ASBA facility to right issues too,” says MV Ramnarayan, director of Intime Spectrum Registry, one of the largest share registrars in the country. He says that the successful execution of ASBA during the recent IPO of 20 Microns has convinced many of these intermediaries about its viability.
Intime is slated to handle the forthcoming, high-profile rights issue of Tata Motors which is looking to raise Rs 5,000 crore from the existing shareholders. Some of the other rights issues, which are expected to hit the market in the coming days, are Hindalco, Bharat Forge, Sadhna Nitrochem and Restile Ceramics.
The public issue of 20 Microns was the first issue where ASBA was tested and, according to Sebi, 9.70% of the retail applications (2,426 out of 25,003 applications) were ASBA. Merchant bankers said that ASBA would really pick up when more banks join the list of Self Certified Syndicate Banks (SCSBs) making them eligible for ASBA.
Keynote Corporate Services director (investment banking) Uday Patil feels, “ASBA would go a long way in helping retail investors who earlier had to wait for days to get refunds.” “ASBA can be viewed as the first step toward complete electronic handling of issues,” says Mr Patil.
He, however, feels that more banks need to get empanelled with Sebi for offering ASBA. Till date, 10 banks have launched ASBA facility, including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
Options outdo futures for first time in 8 years
Besides tax advantages, more and more players are finding options more profitable than futures especially in a range-bound market
Sep 02, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
ONCE seen as a product meant only for the more refined investors, options are becoming more popular than futures, which are more of mass market products. Data reveal that in August, options trading outpaced futures for the first time ever since derivatives were introduced in India eight years ago.
Market participants attribute this trend to the growing number of players, including institutions, that are finding options much more profitable, especially in the current range-bound market. Besides, the tax effectiveness of options over futures after a change in rules this year has made it more appealing to day traders and professional jobbers.
Options are derivative contracts that offer a buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed price (strike price) during a certain period of time or on a specific date (exercise date). When an investor buys an option, the profits that he can make are infinite, but more importantly the losses he may have to incur are limited. In futures both the profits — and losses — can be infinite.
“More and more investors are using options to ride the volatility in the market, which is leading to better volumes in the segment,” says Sailav Kaji, head of derivatives at PINC, a domestic broking house. “The increased participation is leading to still better liquidity and more efficient transactions,” he says.
According to data compiled by ET, options registered a total volume of Rs 3.12 lakh crore in August, which is higher than that of futures at Rs 3.01 lakh crore. Even the average daily turnover of options (Rs 15,605.09 crore) has moved ahead of futures (Rs 15,022.44 crore) for the first time ever in August.
Mr Kaji also points out that the recent introduction of long-dated options has lead to increased interest in the options segment, although volumes there are still to pick up. Options received a major boost when finance minister P Chidambaram, in Union Budget 2008-09, amended the way securities transaction tax (STT) was to be levied on it.
According to the new guidelines, if the option is not exercised, the seller has to pay STT on the premium. If the option is exercised, buyer has to pay STT on settlement price. The move led to many day traders and jobbers switching to options that also allows them to leverage more as compared to futures.
“Leverage and tax treatment are the two most important reasons for the increasing popularity of options,” says Edelweiss Securities assistant vice president Vivek Jain. “Most of the institutional and retail brokerages have started advocating options over futures in the current market scenario,” he added.
Industry participants said brokers, sensing the possible opportunities, have also lowered the brokerage on options trading. “Brokerages charge anything between 7 and 8 basis points to clients that want to trade in futures,” said a broker who did not wish to be named. “The same broker would charge 2-3 basis points for options,” he added.
“Day traders are left with no options but to trade in options since trading in any other category of products attracts too much STT for a transaction to be profitable,” says Rajesh Baheti, MD of Crosseas Capital Services, a large Mumbai-based brokerage that specialises in arbitrage trading. He only buttresses his claim when he says that activity in the index futures is only from the hedgers while those in the stock futures has fallen to almost a quarter of the levels in January this year.
More than 50% of the volumes in the stock market are made by brokerages like Mr Baheti’s. These arbitrage chasers do not take any bets on the direction of a stock, but only seek to lock in the differences between the price of a stock and the futures based on it. But, Mr Baheti says that nearly all of the volumes are restricted to index options, since single stock options still do not have enough liquidity for transactions to be profitable.
Sep 02, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
ONCE seen as a product meant only for the more refined investors, options are becoming more popular than futures, which are more of mass market products. Data reveal that in August, options trading outpaced futures for the first time ever since derivatives were introduced in India eight years ago.
Market participants attribute this trend to the growing number of players, including institutions, that are finding options much more profitable, especially in the current range-bound market. Besides, the tax effectiveness of options over futures after a change in rules this year has made it more appealing to day traders and professional jobbers.
Options are derivative contracts that offer a buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed price (strike price) during a certain period of time or on a specific date (exercise date). When an investor buys an option, the profits that he can make are infinite, but more importantly the losses he may have to incur are limited. In futures both the profits — and losses — can be infinite.
“More and more investors are using options to ride the volatility in the market, which is leading to better volumes in the segment,” says Sailav Kaji, head of derivatives at PINC, a domestic broking house. “The increased participation is leading to still better liquidity and more efficient transactions,” he says.
According to data compiled by ET, options registered a total volume of Rs 3.12 lakh crore in August, which is higher than that of futures at Rs 3.01 lakh crore. Even the average daily turnover of options (Rs 15,605.09 crore) has moved ahead of futures (Rs 15,022.44 crore) for the first time ever in August.
Mr Kaji also points out that the recent introduction of long-dated options has lead to increased interest in the options segment, although volumes there are still to pick up. Options received a major boost when finance minister P Chidambaram, in Union Budget 2008-09, amended the way securities transaction tax (STT) was to be levied on it.
According to the new guidelines, if the option is not exercised, the seller has to pay STT on the premium. If the option is exercised, buyer has to pay STT on settlement price. The move led to many day traders and jobbers switching to options that also allows them to leverage more as compared to futures.
“Leverage and tax treatment are the two most important reasons for the increasing popularity of options,” says Edelweiss Securities assistant vice president Vivek Jain. “Most of the institutional and retail brokerages have started advocating options over futures in the current market scenario,” he added.
Industry participants said brokers, sensing the possible opportunities, have also lowered the brokerage on options trading. “Brokerages charge anything between 7 and 8 basis points to clients that want to trade in futures,” said a broker who did not wish to be named. “The same broker would charge 2-3 basis points for options,” he added.
“Day traders are left with no options but to trade in options since trading in any other category of products attracts too much STT for a transaction to be profitable,” says Rajesh Baheti, MD of Crosseas Capital Services, a large Mumbai-based brokerage that specialises in arbitrage trading. He only buttresses his claim when he says that activity in the index futures is only from the hedgers while those in the stock futures has fallen to almost a quarter of the levels in January this year.
More than 50% of the volumes in the stock market are made by brokerages like Mr Baheti’s. These arbitrage chasers do not take any bets on the direction of a stock, but only seek to lock in the differences between the price of a stock and the futures based on it. But, Mr Baheti says that nearly all of the volumes are restricted to index options, since single stock options still do not have enough liquidity for transactions to be profitable.
Bull run on NSE as cos vie for a slice
Aug 11, 2008
Sangita Mehta & Ashish Rukhaiyar
MUMBAI
INDIA’S leading exchange, the National Stock Exchange (NSE), continues to attract strong investor interest compared to its embattled rival, the Bombay Stock Exchange (BSE), with two corporates — Hero Honda and Srei Infrastructure Finance — acquiring stakes from IFCI and Stock Holding Corporation of India (SHCIL).
At a time when some members of the Bombay Stock Exchange have expressed their willingness to sell their shares at a price lower than what it was placed with institutional investors, the two corporates bought NSE shares at Rs 3,500 apiece. This is the same rate at which the shares of NSE were sold by the Life Insurance Corporation of India in April this year. Stock Holding Corporation, a depository, will earn Rs 20.02 crore by selling 57,200 shares while financial institution IFCI will net Rs 42 crore for the 1.20 crore shares which it put on the block.
This puts NSE’s valuation at close to $4 billion while the valuation of the country’s oldest exchange, Bombay Stock Exchange, has declined to a little less than $1 billion. Stock market players say there are few takers for BSE shares at Rs 4,500 or so.
BSE losing market share to NSE
AT THE height of the market boom, Deutsche Borse had paid Rs 5,200 per share when it acquired a stake of 5% in the BSE. As for the NSE, its share price has risen from Rs 2,100 to Rs 3,500. The decline in the value of BSE shares is largely on account of the fact that the BSE has been steadily losing market share to the NSE. The NSE accounts for almost the entire market share in the derivative space while in the cash market, the NSE has a 60% market share.
Confirming the development, chief executive and managing director of IFCI, Atul Kumar Rai said the move was aimed at bringing down IFCI’s shareholding to 5% as mandated by capital market regulator Sebi.
Senior officials from SHCIL said they were looking at selling their stake, but declined to provide more details. SHCIL has a 7.11% stake in the NSE. Officials in financial institutions said that following the sale of Rs 52,000 shares, SHCIL will continue to hold much higher shares than 5% in the NSE.
The sale of shares is close to the September 2008 deadline set by Sebi on single shareholder limit. Sebi has said no single shareholder can hold more than 5% of the equity in an exchange. At the end of March 31, 2008, LIC, the SBI, Infrastructure Development Finance Corporation and SHCIL have more than 5% stake in the exchange.
In January 2007, IFCI, ICICI Bank, GIC, IL&FS and PNB divested their holdings aggregating 20% in the NSE to the NYSE Group, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund.
Sangita Mehta & Ashish Rukhaiyar
MUMBAI
INDIA’S leading exchange, the National Stock Exchange (NSE), continues to attract strong investor interest compared to its embattled rival, the Bombay Stock Exchange (BSE), with two corporates — Hero Honda and Srei Infrastructure Finance — acquiring stakes from IFCI and Stock Holding Corporation of India (SHCIL).
At a time when some members of the Bombay Stock Exchange have expressed their willingness to sell their shares at a price lower than what it was placed with institutional investors, the two corporates bought NSE shares at Rs 3,500 apiece. This is the same rate at which the shares of NSE were sold by the Life Insurance Corporation of India in April this year. Stock Holding Corporation, a depository, will earn Rs 20.02 crore by selling 57,200 shares while financial institution IFCI will net Rs 42 crore for the 1.20 crore shares which it put on the block.
This puts NSE’s valuation at close to $4 billion while the valuation of the country’s oldest exchange, Bombay Stock Exchange, has declined to a little less than $1 billion. Stock market players say there are few takers for BSE shares at Rs 4,500 or so.
BSE losing market share to NSE
AT THE height of the market boom, Deutsche Borse had paid Rs 5,200 per share when it acquired a stake of 5% in the BSE. As for the NSE, its share price has risen from Rs 2,100 to Rs 3,500. The decline in the value of BSE shares is largely on account of the fact that the BSE has been steadily losing market share to the NSE. The NSE accounts for almost the entire market share in the derivative space while in the cash market, the NSE has a 60% market share.
Confirming the development, chief executive and managing director of IFCI, Atul Kumar Rai said the move was aimed at bringing down IFCI’s shareholding to 5% as mandated by capital market regulator Sebi.
Senior officials from SHCIL said they were looking at selling their stake, but declined to provide more details. SHCIL has a 7.11% stake in the NSE. Officials in financial institutions said that following the sale of Rs 52,000 shares, SHCIL will continue to hold much higher shares than 5% in the NSE.
The sale of shares is close to the September 2008 deadline set by Sebi on single shareholder limit. Sebi has said no single shareholder can hold more than 5% of the equity in an exchange. At the end of March 31, 2008, LIC, the SBI, Infrastructure Development Finance Corporation and SHCIL have more than 5% stake in the exchange.
In January 2007, IFCI, ICICI Bank, GIC, IL&FS and PNB divested their holdings aggregating 20% in the NSE to the NYSE Group, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund.
Rajnikant Patel's exit turns spotlight on BSE hot seat
Aug 09, 2008
Santosh Nair & Ashish Rukhaiyar
MUMBAI
TOP ranking officials of Asia’s oldest stock exchange BSE and Indian cricketers seem to have one thing in common — few have been able to make a graceful exit. Rumours of BSE chief executive and managing director Rajnikant Patel’s resignation had been doing the rounds for quite some time. When he finally put in his papers late on Thursday after cutting short a trip to Hyderabad where he had gone on an official visit, it was the second controversial exit of a board member of the exchange in less than two months. ET reported Mr Patel’s resignation in its late edition dated August 8, 2008.
People familiar with the development say that Mr Patel’s resignation was “just a matter of time” as he was perceived to be quite close to Shekhar Datta, who himself resigned abruptly from the post of chairman in June.
BSE insiders say Mr Patel was instrumental in mustering support for Mr Datta’s election as BSE chairman in 2007, replacing Jagdish Capoor. Mr Capoor is now back as chairman of the exchange, taking over from Mr Datta. Circles close to Mr Patel cite increasing interference from some of the broker members on the board as one of the reasons for his sudden exit. Mr Patel was unavailable for comment. But there are allegations of wrong-doings against Mr Patel too.
While the truth may lie somewhere in between, the latest chapter in the saga of BSE board room battles once again highlights the issue of clash of interests originating out of the presence of broker members on the board.
BSE needs a braveheart to reverse its flagging fortunes
BSE brokers rue that they have been marginalised due to lack of adequate representation on the board. The 12-member BSE board has three brokers — Prakash R Kacholia of Emkay Share and Stock Brokers, Balkishan Mohta and Siddharth J Shah of JGA Shah Share Brokers. Some feel that having more brokers on the board would help as they would be aware of the business realities. But then, BSE brokers have not exactly covered themselves in glory in the past, when given a free hand.
So, should the NSE model of zero broker representation on the board be followed? After all, it has worked fine, though brokers have often complained of high-handedness by the exchange. Those unhappy with NSE’s policies can surrender memberships is the bourse’s attitude to brokers, they say.
Leading brokers, who were optimistic of a revival in the exchange’s fortunes after Deutsche Borse took 5% stake in BSE at Rs 5,200 per share have all but given up hope. The value of a BSE share has reportedly fallen to nearly Rs 4,000.
During Mr Datta’s tenure as BSE chairman, Mr Patel was heading several important committees, including the one on derivatives. This committee is believed to have played an important role in signing the technology agreement with OMX costing $37.50 million, to improve BSE’s trading software for derivatives.
“There was absolutely no need for such an expensive agreement,” says a person who has worked with the exchange. “It is going to take not less than an year and a half for the platform to be delivered if the deal passes muster,” he added. The deal is believed to be under review by the BSE board that last met on July 26. Mr Patel did not attend that meet, citing “health reasons”.
Incidentally, the meeting assumes significance, given the fact that it was the second board meet in the same month (the first was on July 12). This, according to exchange officials, was the first sign that something was amiss within the board. Officials also say that Mr Patel was “not attending office on all days in the recent past”.
Starting his career in the exchange as director (surveillance and inspection) in 2001, Mr Patel rapidly moved up the ranks to become CEO in 2004, succeeding Manoj Vaish who quit to join a market research firm. His meteoric rise notwithstanding, Mr Patel marks his exit from the exchange as yet another boss who has been unable to reverse the BSE’s flagging fortunes, from the time it lost market leadership to rival NSE.
The immediate challenge for Asia’s oldest bourse is to find someone who will be willing to pick up the baton from where Mr Patel has left. Given the unsavoury track record of board room conspiracies and the near-insurmountable gap in market share, it will require a braveheart to throw his hat into the ring.
The BSE desperately needs to carve out for itself a meaningful presence in the derivatives segment if it is to nurse any hopes of improving market share. Market-watchers feel some innovative product is badly needed, as the NSE scores way up on liquidity.
Combining cash and derivatives volumes on any given day, BSE’s market share barely works out to 10%. Its market share in the cash segment has remained constant between 35-40%, but its biggest failing has been the derivatives segment, where it has no presence worth mentioning.
The BSE’s benchmark index, Sensex, may have a better brand recall compared with the NSE’s Nifty. But it is the Nifty futures which institutional investors turn to for hedging their portfolio. The same holds true for traders. A significant chunk of the NSE’s cash market volumes results from the arbitrage between the cash and futures market. To add to BSE’s woes, some of the recent changes in the margining system are expected to further erode BSE’s market share.
In May this year, the Securities and Exchange Board of India allowed cross-margining between cash and derivatives segments, under which an investor buying a stock in which he already has a short position in the futures segment will not have to pay the value-at-risk (VaR) margin twice over. An investor would be able to avail of this facility only if both his cash and derivative market positions are on the same exchange. Since much of the derivatives trading takes place only on the NSE, more business is expected to shift to that bourse.
Other threats loom, but there are also opportunities if the BSE is willing to make a tectonic shift. The BSE should ensure that its failure in equity derivatives should not be repeated with currency futures trading which is expected to commence soon. The exchange has to revive its Indonext platform that it does not lose these firms to a dedicated exchange for small and medium enterprises in future.
Santosh Nair & Ashish Rukhaiyar
MUMBAI
TOP ranking officials of Asia’s oldest stock exchange BSE and Indian cricketers seem to have one thing in common — few have been able to make a graceful exit. Rumours of BSE chief executive and managing director Rajnikant Patel’s resignation had been doing the rounds for quite some time. When he finally put in his papers late on Thursday after cutting short a trip to Hyderabad where he had gone on an official visit, it was the second controversial exit of a board member of the exchange in less than two months. ET reported Mr Patel’s resignation in its late edition dated August 8, 2008.
People familiar with the development say that Mr Patel’s resignation was “just a matter of time” as he was perceived to be quite close to Shekhar Datta, who himself resigned abruptly from the post of chairman in June.
BSE insiders say Mr Patel was instrumental in mustering support for Mr Datta’s election as BSE chairman in 2007, replacing Jagdish Capoor. Mr Capoor is now back as chairman of the exchange, taking over from Mr Datta. Circles close to Mr Patel cite increasing interference from some of the broker members on the board as one of the reasons for his sudden exit. Mr Patel was unavailable for comment. But there are allegations of wrong-doings against Mr Patel too.
While the truth may lie somewhere in between, the latest chapter in the saga of BSE board room battles once again highlights the issue of clash of interests originating out of the presence of broker members on the board.
BSE needs a braveheart to reverse its flagging fortunes
BSE brokers rue that they have been marginalised due to lack of adequate representation on the board. The 12-member BSE board has three brokers — Prakash R Kacholia of Emkay Share and Stock Brokers, Balkishan Mohta and Siddharth J Shah of JGA Shah Share Brokers. Some feel that having more brokers on the board would help as they would be aware of the business realities. But then, BSE brokers have not exactly covered themselves in glory in the past, when given a free hand.
So, should the NSE model of zero broker representation on the board be followed? After all, it has worked fine, though brokers have often complained of high-handedness by the exchange. Those unhappy with NSE’s policies can surrender memberships is the bourse’s attitude to brokers, they say.
Leading brokers, who were optimistic of a revival in the exchange’s fortunes after Deutsche Borse took 5% stake in BSE at Rs 5,200 per share have all but given up hope. The value of a BSE share has reportedly fallen to nearly Rs 4,000.
During Mr Datta’s tenure as BSE chairman, Mr Patel was heading several important committees, including the one on derivatives. This committee is believed to have played an important role in signing the technology agreement with OMX costing $37.50 million, to improve BSE’s trading software for derivatives.
“There was absolutely no need for such an expensive agreement,” says a person who has worked with the exchange. “It is going to take not less than an year and a half for the platform to be delivered if the deal passes muster,” he added. The deal is believed to be under review by the BSE board that last met on July 26. Mr Patel did not attend that meet, citing “health reasons”.
Incidentally, the meeting assumes significance, given the fact that it was the second board meet in the same month (the first was on July 12). This, according to exchange officials, was the first sign that something was amiss within the board. Officials also say that Mr Patel was “not attending office on all days in the recent past”.
Starting his career in the exchange as director (surveillance and inspection) in 2001, Mr Patel rapidly moved up the ranks to become CEO in 2004, succeeding Manoj Vaish who quit to join a market research firm. His meteoric rise notwithstanding, Mr Patel marks his exit from the exchange as yet another boss who has been unable to reverse the BSE’s flagging fortunes, from the time it lost market leadership to rival NSE.
The immediate challenge for Asia’s oldest bourse is to find someone who will be willing to pick up the baton from where Mr Patel has left. Given the unsavoury track record of board room conspiracies and the near-insurmountable gap in market share, it will require a braveheart to throw his hat into the ring.
The BSE desperately needs to carve out for itself a meaningful presence in the derivatives segment if it is to nurse any hopes of improving market share. Market-watchers feel some innovative product is badly needed, as the NSE scores way up on liquidity.
Combining cash and derivatives volumes on any given day, BSE’s market share barely works out to 10%. Its market share in the cash segment has remained constant between 35-40%, but its biggest failing has been the derivatives segment, where it has no presence worth mentioning.
The BSE’s benchmark index, Sensex, may have a better brand recall compared with the NSE’s Nifty. But it is the Nifty futures which institutional investors turn to for hedging their portfolio. The same holds true for traders. A significant chunk of the NSE’s cash market volumes results from the arbitrage between the cash and futures market. To add to BSE’s woes, some of the recent changes in the margining system are expected to further erode BSE’s market share.
In May this year, the Securities and Exchange Board of India allowed cross-margining between cash and derivatives segments, under which an investor buying a stock in which he already has a short position in the futures segment will not have to pay the value-at-risk (VaR) margin twice over. An investor would be able to avail of this facility only if both his cash and derivative market positions are on the same exchange. Since much of the derivatives trading takes place only on the NSE, more business is expected to shift to that bourse.
Other threats loom, but there are also opportunities if the BSE is willing to make a tectonic shift. The BSE should ensure that its failure in equity derivatives should not be repeated with currency futures trading which is expected to commence soon. The exchange has to revive its Indonext platform that it does not lose these firms to a dedicated exchange for small and medium enterprises in future.
Brokers find few takers for BSE shares
BSE Members Find It Difficult To Sell
Their Holdings Even At A Steep Discount
Aug 05, 2008
Ashish Rukhaiyar & Santosh Nair
MUMBAI
THE downtrend in the stockmarket has claimed an unexpected victim. Asia’s oldest stock exchange, which saw its benchmark index falling over 40% from its peak, is now facing a drop in its own share price. People familiar with the development say some members are ready to sell BSE shares at a discount to the price at which they received it when the exchange was demutualised in 2007.
“I would be happy if I could get Rs 4,800 (per share),” says Arun Sureka, an investor who is holding 877 shares in BSE. He also claims to know two other investors, who are holding a similar quantity of shares and looking for an exit. Since a trading platform is not available for BSE shares, brokers do not have much option, but to call fellow brokers to enquire about any interested entities.
It is believed that the low business volume in the cash segment of BSE, coupled with the insignificant derivatives turnover has affected valuations. The lack of clarity over the proposed listing of the shares is also playing spoilsport. The immediate trigger for the share sale is attributed to the steep fall in the income of most brokers who are now looking at alternate sources of revenue.
Brokers, however, have been disappointed as the value of the shares has fallen and there are not many interested buyers in the market. The Bombay Stock Exchange completed the demutualisation process in May 2007 when it placed 51% of its equity with 21 investors, including Singapore Exchange and Deutsche Borse.
A BSE release at that time said the fresh issue and placement of shares in the offer for sale were priced at Rs 5,200 per share, pegging the market capitalisation of BSE at around $1 billion. At the time of demutualisation, BSE broker-members were given 10,000 shares of the exchange for every single card held.
The developments come close on the heels of SBI’s decision to sell a part of its holding in the National Stock Exchange (NSE). According to people close to the development, the bank is hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for NSE.
A market observer, when questioned about the current value of BSE shares, said it was difficult for anyone to extract a price of more than Rs 4,500 per share due to the dismal performance of the exchange in terms of business volume and also due to the fact that the interest in equity market has dwindled.
“The growth in business volume of BSE has not been as much as that of NSE and so the valuations have come down,” he said. A fall in benchmark indices in the period between May 2007 and the present can also act as a barometer for the BSE share price, he added.
Another factor that is believed to have impacted the share price is that of size. Brokers who are currently willing to sell their shares are doing so in small lots and so not many fellow brokers are interested.
Also, foreign entities cannot be sounded out, as the maximum permissible limit of foreign holding in the exchange has already been reached. Many large-sized brokerages, interestingly, feel that the share would fetch a far higher price if done by renowned entities.
THE BEAR MINIMUM
* Broker members were given shares in May 2007 when BSE was demutualised
* Brokers got 10,000 shares at Rs 5,200 per share for each BSE card
* Proposed listing of BSE would have provided trading platform for its shares
* With listing nowhere in sight, brokers & other shareholders looking for ways to sell these shares
* There are not many entities that are ready to offer over Rs 5,000 for these shares
* BSE losing share to its much newer counterpart NSE believed to have affected its valuations
* NSE’s valuation is said to be around $4 billion, while BSE’s pegged around $1 billion
Their Holdings Even At A Steep Discount
Aug 05, 2008
Ashish Rukhaiyar & Santosh Nair
MUMBAI
THE downtrend in the stockmarket has claimed an unexpected victim. Asia’s oldest stock exchange, which saw its benchmark index falling over 40% from its peak, is now facing a drop in its own share price. People familiar with the development say some members are ready to sell BSE shares at a discount to the price at which they received it when the exchange was demutualised in 2007.
“I would be happy if I could get Rs 4,800 (per share),” says Arun Sureka, an investor who is holding 877 shares in BSE. He also claims to know two other investors, who are holding a similar quantity of shares and looking for an exit. Since a trading platform is not available for BSE shares, brokers do not have much option, but to call fellow brokers to enquire about any interested entities.
It is believed that the low business volume in the cash segment of BSE, coupled with the insignificant derivatives turnover has affected valuations. The lack of clarity over the proposed listing of the shares is also playing spoilsport. The immediate trigger for the share sale is attributed to the steep fall in the income of most brokers who are now looking at alternate sources of revenue.
Brokers, however, have been disappointed as the value of the shares has fallen and there are not many interested buyers in the market. The Bombay Stock Exchange completed the demutualisation process in May 2007 when it placed 51% of its equity with 21 investors, including Singapore Exchange and Deutsche Borse.
A BSE release at that time said the fresh issue and placement of shares in the offer for sale were priced at Rs 5,200 per share, pegging the market capitalisation of BSE at around $1 billion. At the time of demutualisation, BSE broker-members were given 10,000 shares of the exchange for every single card held.
The developments come close on the heels of SBI’s decision to sell a part of its holding in the National Stock Exchange (NSE). According to people close to the development, the bank is hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for NSE.
A market observer, when questioned about the current value of BSE shares, said it was difficult for anyone to extract a price of more than Rs 4,500 per share due to the dismal performance of the exchange in terms of business volume and also due to the fact that the interest in equity market has dwindled.
“The growth in business volume of BSE has not been as much as that of NSE and so the valuations have come down,” he said. A fall in benchmark indices in the period between May 2007 and the present can also act as a barometer for the BSE share price, he added.
Another factor that is believed to have impacted the share price is that of size. Brokers who are currently willing to sell their shares are doing so in small lots and so not many fellow brokers are interested.
Also, foreign entities cannot be sounded out, as the maximum permissible limit of foreign holding in the exchange has already been reached. Many large-sized brokerages, interestingly, feel that the share would fetch a far higher price if done by renowned entities.
THE BEAR MINIMUM
* Broker members were given shares in May 2007 when BSE was demutualised
* Brokers got 10,000 shares at Rs 5,200 per share for each BSE card
* Proposed listing of BSE would have provided trading platform for its shares
* With listing nowhere in sight, brokers & other shareholders looking for ways to sell these shares
* There are not many entities that are ready to offer over Rs 5,000 for these shares
* BSE losing share to its much newer counterpart NSE believed to have affected its valuations
* NSE’s valuation is said to be around $4 billion, while BSE’s pegged around $1 billion
Umpire Sebi has its job cut out in NSDL, CDSL war
Aug 04, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
IT REMINDS you of a boxing match, where the referee has to constantly separate the two fighters to ensure that they do not endanger each other’s health. The boxers, in this case, are the two depository service providers — NSDL and CDSL — and playing referee is the Securities and Exchange Board of India (Sebi). At stake is the clientele of over three crore Indian investors.
Over the past one year, the two premier stock depositories have been at each other’s throat on a host of issues. This is good news for investors, as charges have been falling because of the ongoing competition. But the constant feuding is a headache for market regulator Sebi, which has had to intervene frequently to cool down tempers.
A delicate task for Sebi chairman CB Bhave, considering that he headed NSDL before taking up the assignment at Sebi. Mr Bhave had been with National Stock Exchange-promoted depository since its inception in 1996. This ongoing war could only intensify in future, considering CDSL is fast catching up with market leader NSDL. In the past one year, the number of demat accounts with NSDL has been stagnant around 75 lakh. In comparison, demat accounts with Bombay Stock Exchange-promoted CDSL have more than doubled to 52 lakh during the same period.
In December last year, several investors and brokers on the BSE and NSE suffered losses after they sold shares that had been bought in the previous session, assuming that the shares had already been credited to their accounts. But due to a technical glitch in the transfer of data between the two depositories, the shares had not been credited. Since neither depository was willing to accept responsibility for the incident, Sebi had to appoint an independent inquiry panel consisting of experts from consultancy firm PwC.
Another issue over which the two depositories are at loggerheads is the ‘in-person verification’. This disclosure norm requires that brokerages send their ‘representatives’ to verify the details of a person who wishes to open a demat account. (This was one of the anti-money laundering measures put in place after the IPO scam). Since the rule was loosely worded, brokers passed on the responsibility to their sub-brokers or even franchisees.
At least, CDSL did not insist that a person from the brokerage itself should do the verification. But in April this year, Sebi wrote a letter to both depositories, saying that henceforth only officials from the main brokerage would be allowed to conduct these inspections. A NSDL official said the depository had always followed this rule. Incidentally, members from the broking community have requested Sebi to relax this norm, saying it was not economically viable in the case of many upcountry branches.
CDSL was formed in 1999, and has been aggressive in its efforts to gain market share. However it is understandable, considering that NSDL had a three-year headstart. But some of CDSL’s tactics have been criticised as predatory. For instance, CDSL started the practice of offering rebates to certain brokerages, presumably to get them encourage clients to open demat accounts with CDSL. This irked NSDL, which did not have a policy of rebates. The dispute went to Sebi, which ruled against any rebates, forcing CDSL roll them back.
“The rebate we offer is essentially a commercial decision, why should anybody interfere with that?,” asks a CDSL official who points out that the names of the brokerages being offered rebates were put up on the CDSL website.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
IT REMINDS you of a boxing match, where the referee has to constantly separate the two fighters to ensure that they do not endanger each other’s health. The boxers, in this case, are the two depository service providers — NSDL and CDSL — and playing referee is the Securities and Exchange Board of India (Sebi). At stake is the clientele of over three crore Indian investors.
Over the past one year, the two premier stock depositories have been at each other’s throat on a host of issues. This is good news for investors, as charges have been falling because of the ongoing competition. But the constant feuding is a headache for market regulator Sebi, which has had to intervene frequently to cool down tempers.
A delicate task for Sebi chairman CB Bhave, considering that he headed NSDL before taking up the assignment at Sebi. Mr Bhave had been with National Stock Exchange-promoted depository since its inception in 1996. This ongoing war could only intensify in future, considering CDSL is fast catching up with market leader NSDL. In the past one year, the number of demat accounts with NSDL has been stagnant around 75 lakh. In comparison, demat accounts with Bombay Stock Exchange-promoted CDSL have more than doubled to 52 lakh during the same period.
In December last year, several investors and brokers on the BSE and NSE suffered losses after they sold shares that had been bought in the previous session, assuming that the shares had already been credited to their accounts. But due to a technical glitch in the transfer of data between the two depositories, the shares had not been credited. Since neither depository was willing to accept responsibility for the incident, Sebi had to appoint an independent inquiry panel consisting of experts from consultancy firm PwC.
Another issue over which the two depositories are at loggerheads is the ‘in-person verification’. This disclosure norm requires that brokerages send their ‘representatives’ to verify the details of a person who wishes to open a demat account. (This was one of the anti-money laundering measures put in place after the IPO scam). Since the rule was loosely worded, brokers passed on the responsibility to their sub-brokers or even franchisees.
At least, CDSL did not insist that a person from the brokerage itself should do the verification. But in April this year, Sebi wrote a letter to both depositories, saying that henceforth only officials from the main brokerage would be allowed to conduct these inspections. A NSDL official said the depository had always followed this rule. Incidentally, members from the broking community have requested Sebi to relax this norm, saying it was not economically viable in the case of many upcountry branches.
CDSL was formed in 1999, and has been aggressive in its efforts to gain market share. However it is understandable, considering that NSDL had a three-year headstart. But some of CDSL’s tactics have been criticised as predatory. For instance, CDSL started the practice of offering rebates to certain brokerages, presumably to get them encourage clients to open demat accounts with CDSL. This irked NSDL, which did not have a policy of rebates. The dispute went to Sebi, which ruled against any rebates, forcing CDSL roll them back.
“The rebate we offer is essentially a commercial decision, why should anybody interfere with that?,” asks a CDSL official who points out that the names of the brokerages being offered rebates were put up on the CDSL website.
Subscribe to:
Posts (Atom)