Jigar Pathak & Ashish Rukhaiyar
MUMBAI
April 24, 2009
IT CONTINUES to be a downhill ride for the Bombay Stock Exchange. Its market share in the cash segment has fallen to 25% now, and market watchers say this is likely to shrink further as brokers increasingly use cross-margining facility between the cash and derivatives market.
Cross margining allows a market participant to reduce his margin payment obligation for offsetting positions in cash and the derivatives market. For instance, if a trader is long 2000 shares of ACC in the cash segment, and short 1000 shares of ACC in the derivatives segment, he is liable to pay a margin on only 1000 shares (2000 minus 1000).
According to a release by the National Stock Exchange recently, around 20% of the brokers in the cash market segment and around 30% of the brokers in the derivatives segment have registered for using the cross-margining facility, thus saving around Rs 700 crore by way of margin payment.
“It is very unlikely for any market participant to incur additional margin cost by trading only on the cash segment of BSE as its derivatives segment is not picking up. Slowly, but surely, the implications would be visible for BSE,” said Manoj Vaish, President & CEO-India, Dun & Bradstreet.
Why cross margining hurts BSE is because trading volumes in its derivative segment is negligible. So a trader, who transacts in both the cash and derivatives segment, would find it cheaper to trade on NSE as he could save on margin obligations.
“I feel this (cross margining) is bad for BSE, but it makes the Indian equity market more efficient even though it goes against BSE’s interests. India’s interests should matter more than BSE’s interest,” said Ajay Shah, senior fellow at National Institute of Public Finance and Policy.
Some experts opine that for better price efficiency, there has to be arbitrage opportunities between the two exchanges. “Arbitrage opportunities would add to the volumes on BSE, but there are not likely to be too many such deals,” says KR Choksey Securities MD Deven Choksey.
“Also, some dedicated institutional investors, who prefer BSE over NSE for bulk and block deals would keep the volumes ticking for the bourse. However, in the longerterm, due to higher impact cost, the other institutional investors would opt out of BSE,” he adds.
Geogit financial services MD CJ George believes that in the longer run, when algorithm trading picks up, orders in the cash segment would automatically flow to the exchange, which provides the competitive price.
“However, investors having an offsetting position would prefer NSE over BSE till the time derivative segment of BSE picks up,” he says.
MUMBAIApril 24, 2009
IT CONTINUES to be a downhill ride for the Bombay Stock Exchange. Its market share in the cash segment has fallen to 25% now, and market watchers say this is likely to shrink further as brokers increasingly use cross-margining facility between the cash and derivatives market.
Cross margining allows a market participant to reduce his margin payment obligation for offsetting positions in cash and the derivatives market. For instance, if a trader is long 2000 shares of ACC in the cash segment, and short 1000 shares of ACC in the derivatives segment, he is liable to pay a margin on only 1000 shares (2000 minus 1000).
According to a release by the National Stock Exchange recently, around 20% of the brokers in the cash market segment and around 30% of the brokers in the derivatives segment have registered for using the cross-margining facility, thus saving around Rs 700 crore by way of margin payment.
“It is very unlikely for any market participant to incur additional margin cost by trading only on the cash segment of BSE as its derivatives segment is not picking up. Slowly, but surely, the implications would be visible for BSE,” said Manoj Vaish, President & CEO-India, Dun & Bradstreet.
Why cross margining hurts BSE is because trading volumes in its derivative segment is negligible. So a trader, who transacts in both the cash and derivatives segment, would find it cheaper to trade on NSE as he could save on margin obligations.
“I feel this (cross margining) is bad for BSE, but it makes the Indian equity market more efficient even though it goes against BSE’s interests. India’s interests should matter more than BSE’s interest,” said Ajay Shah, senior fellow at National Institute of Public Finance and Policy.
Some experts opine that for better price efficiency, there has to be arbitrage opportunities between the two exchanges. “Arbitrage opportunities would add to the volumes on BSE, but there are not likely to be too many such deals,” says KR Choksey Securities MD Deven Choksey.
“Also, some dedicated institutional investors, who prefer BSE over NSE for bulk and block deals would keep the volumes ticking for the bourse. However, in the longerterm, due to higher impact cost, the other institutional investors would opt out of BSE,” he adds.
Geogit financial services MD CJ George believes that in the longer run, when algorithm trading picks up, orders in the cash segment would automatically flow to the exchange, which provides the competitive price.
“However, investors having an offsetting position would prefer NSE over BSE till the time derivative segment of BSE picks up,” he says.
No comments:
Post a Comment