BSE Limited’s (Bombay Stock Exchange) shares saw a 19% decline on the National Stock Exchange (NSE) today, marking one of the most significant drops since its listing. This fall came amidst heavy trading triggered by the recent directive from the Securities and Exchange Board of India (SEBI) regarding regulatory fees on the ‘notional value’ of annual turnover.
The market regulator SEBI issued a directive to BSE on Friday, instructing the exchange to pay a regulatory fee based on the ‘notional value’ of its annual turnover in case of Option Contracts. This directive has led to a significant setback for BSE, causing chaos in the stock market.
BSE’s Liability
BSE, in response to SEBI’s directive, is now liable to pay Total Regulatory Fees along with a 15% interest, based on the Annual Turnover considering the Notional Value in the case of Option Contracts. The directive also warrants the payment of a differential regulatory fee for past periods along with applicable interest within a month from the reception of the directive.
The concept of ‘notional turnover’ here refers to the total strike price of each contract traded in derivatives, which exceeds the premium turnover, resulting in a higher outgo as a fee. While the NSE pays charges on notional value, BSE has been paying the turnover fee based on premium value.
Upon receiving SEBI’s directive, BSE stated that it is evaluating the validity of the claim. However, if found payable, the total differential SEBI regulatory fees for past periods from FY 2006-07 to FY 2022-23 could amount to around Rs 68.64 crore plus GST, including an interest of Rs 30.34 crore.
Impact and Mitigation
Analysts have expressed concerns over the impact of this move on BSE’s market performance. Jefferies, a brokerage firm, downgraded BSE to ‘Hold’ from ‘Buy’ and reduced the target price from Rs 3000 to Rs 2900, citing the near-term constraint imposed by higher fee limits.
According to HDFC Securities analysts, the shift from premium to notional value calculation poses a significant regulatory challenge for BSE, potentially resulting in a fee of approximately Rs 1/2.5/3.1 billion, forming a significant percentage of forecasted adjusted profit after tax (APAT) for FY 24/25/26E.
Analysts also suggest potential measures for mitigating the impact of higher regulatory fees, such as increasing transaction charges by 25% and reducing clearing charges by 10%. However, the extent of this impact reduction remains subject to market dynamics and compliance.
Market Performance
#SEBI asks #BSE to pay regulatory fee on annual turnover fee.#bseltd experienced an initial sharp decline of 18% but eventually settled with a 13.68% decrease following regulatory issues. are you considering purchasing #bseltd at retest levels indicated on the weekly chart? 🤔 pic.twitter.com/4kHKyIJ3gM
— A&Y Market Research -AYMR (@aymr2504) April 29, 2024
Despite today’s sharp decline, BSE’s stock has demonstrated substantial growth over the past year, growing by 415%, significantly outperforming the benchmark index. However, this recent development has prompted investors to reassess their positions in the stock.
At 09:44 am, BSE was trading 17% lower at Rs 2677.95 on the NSE, as compared to a marginal rise of 0.27% in the Nifty 50.
