Investor Interest   Exclusive
BSE cuts charges for equity derivative trades

In a desperate attempt to capture volumes from NSE’s vastly superior derivatives segment, BSE slashes transaction costs for its F&O segment

Asia’s oldest stock exchange, the Bombay Stock Exchange (BSE), is introducing revised transaction charges in the equity derivatives segment in a bid to attract more liquidity into its platform. This move, which will reduce the overall impact costs of investors, will be effective from 29 December 2009. With this, the BSE hopes to grab market share from the National Stock Exchange (NSE), which virtually dominates the domestic futures and options (F&O) segment.

According to BSE, the innovative fee structures will substantially lower transaction costs for all market participants and improve depth and liquidity in BSE’s equity derivatives segment.

The charges applicable will be Rs1 per Rs1 lakh for passive orders and Rs1.50 per Rs1 lakh for active orders inclusive of investor protection fund (IPF) and trade guarantee fund (TGF) for stock futures and index futures category. This essentially means that BSE will pay Re1 on every Rs1 lakh of passive orders placed by its members in the stock and index futures segment. Similarly, it will pay Rs15 on every Rs15 lakh passive order placed in the stock and index options segment.

Passive orders are orders that already exist in the order book at the time of matching (order taking place) while active orders are orders that are matched against the orders already existing in the order book at the time of matching.
How do brokerages and other market participants view this move by the BSE? “Most of the brokerages and market participants have welcomed this move, but the impact will take its own time. BSE’s recent move will give another opportunity for market participants to improve their volume and liquidity. Compared to the rival NSE’s volume, BSE’s derivatives volume is negligible, but the recent steps taken by it have created a positive environment in the minds of brokerages and market participants,” said Chandrashekhar Layane, senior vice president, FairWealth Securities Pvt Ltd.

Although BSE is betting on volumes to increase as a result of this pricing strategy, the end result has more to do with attracting market participants to the derivatives platform. “The claim as made by BSE may reduce some transaction costs, but it is subject to increase in trading volume. The volumes will increase only if BSE is able to attract market participants to its derivatives platform. Recently, BSE announced changes in monthly derivatives and weekly derivatives expiry dates effective from February 2010. Day-wise it is pre-poned to 3rd Thursday of the month instead of the 4th and Thursday for weekly contracts instead of Friday. This will help in easing the cost of carry due to duration of expiry day/dates and will also improve liquidity,” added Mr Layane.

The BSE index and single stock futures and options markets will now provide a whole new range of hedging, investment and trading opportunities to exchange members and their retail and institutional clients.

BSE launched the first exchange-traded Index Derivative Contract on 9 June 2000. Ever since, it has struggled to attract participants, affecting the liquidity on its derivatives platform. NSE, on the other hand, has made giant strides in the derivatives market, emerging as a virtual monopoly in this lucrative business, with a whopping 98% share.

Interestingly, however, BSE enjoys a lot more goodwill from many of its broker participants. Several of them also have a stake in the stock exchange. As such, they have a vested interest in providing support to BSE’s efforts to revive its struggling derivatives segment. Hence, it would not be surprising to see brokerage houses put their weight behind BSE’s latest move.

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    Companies & Sectors   Exclusive
    Entertainment World to focus on development in Tier II cities

    Entertainment World Developers Pvt Ltd (EWDPL), with expertise in developing shopping centres in Tier II cities, is now developing township projects as well. Manish Kalani, managing director, EWDPL, discusses the new projects of the company with Pallabika Ganguly

    Pallabika Ganguly (ML): How many township projects are you developing or planning to develop?
    Manish Kalani (MK):
    Currently, we are developing 11 township projects in Tier II cities. The first four townships that we launched are in Indore, Raipur and Udaipur. The total built-up area of all our township projects is about 50 million sq ft. We are working with two concept projects, Treasure Town and Treasure Vihar. Treasure Town is a project with a fully-equipped club house, spa, schools, and shopping centres while Treasure Vihar is a project of affordable houses.

    ML: How many Treasure Towns and Treasure Vihars are you developing?
    We are coming up with two Treasure Towns in Indore, two in Udaipur and one in Raipur. Each Treasure Town has an approximate built-up area of 4.5 million sq ft. It comprises two and three bedroom, hall and kitchen (BHK) apartments, starting from 1,500 sq ft to 2,000 sq ft. The apartments are priced between Rs50 lakh to Rs60 lakh.

    In our Treasure Vihar project, we have a built-up area of 4.5 million sq ft. We are coming up with three such projects in Indore, one in Udaipur and one in Raipur. We are looking at creating some of the greenest townships in terms of open space.

    ML: Don’t you feel that the prices you quoted for these projects are high for a Tier II city?
    We have recently launched Treasure Town in Indore and have already received booking for 300 apartments, priced from Rs25 lakh to Rs50 lakh. In Udaipur, we received about 150 bookings. For our Treasure Vihar projects, we received bookings for 300 apartments in Indore and 100 bookings in Udaipur. So I don’t think the prices are high when you look at the services and facilities that we are offering.

    We are launching the fourth township, the second Treasure Vihar in Indore, in January 2010. It comprises one BHK (500 sq ft), two BHK (700 sq ft) and three BHK (1,200 sq ft) and the price range would be between Rs7 lakh to Rs20 lakh.

    ML: What is the time frame for development of these township projects?
    We plan to hand over our four Indore and Udaipur-based townships from December 2010 till 2015.

    ML: Who are the stakeholders in your township projects?
    We have K2C, an AIM-listed company which has invested $10 million in the Indore township project, Landmark Group has invested $5 million in the Udaipur township and the rest is owned by EWDPL.

    ML: The industry is sceptical about Tier II cities. Why are you launching townships and shopping centres in these cities?
    Our unique selling proposition has always been carrying out developments in emerging, fast-growing cities. Before entering a city, we measure it on different parameters—the city must have potential and we must be the first mover to exploit the potential. In most of the locations, we developed the first shopping centres.

    ML: How many shopping centres have you planned in 2010?
    All together, we are developing 13 shopping centres, out of which two are operational in Indore and the third will open at Nanded in Maharashtra in January 2010. Moving forward, we will be launching our next shopping centre at Ujjain between March and April. Then there is one shopping centre coming up at Raipur in September, one at Bhilai in October, and another at Jabalpur in December followed by a third shopping mall at Indore in December. The remaining four shopping centres at Mohali, Udaipur, Vadodara, Thiruvananthapuram and Amravati will be operational between 2010-2011. All our projects are in advanced stages of construction. The total construction of these shopping centres is close to 10 million sq ft. Out of 10 million sq ft, 6 million sq ft is already being constructed. Most of the malls are at the fit-out stage. From December 2010, nine malls will be operational and the rest will be operational by 2011.

    ML: You are coming up with an initial public offering (IPO) next year. Can you elaborate on your plans for the same?
    We are planning to raise about Rs500 crore–Rs600 crore through an IPO for future expansion and a small portion will be utilised for the repayment of debt.

    ML: How do you see the retail segment growing in the next two years?
    We were the first one to propagate the revenue-share model in India even before retailers started talking about it. We are at the tip of the iceberg. The organised consumption in India is still around 5%-7% while in other countries like China it is 25% plus, in the US it is 85% and in Europe it is 65%. So we are at the bottom and we have a long way to go. There are not enough retailers in India.

    Out of 200-odd operational shopping centres, 80% of malls are filled with the same 400 brands. There is no new experience.

    ML: How do you think more number of players can come into the retail segment?
    We have more than 5,000 successful brands in the country which individually do an annual turnover of more than Rs5 crore, which some of the organised retail players do not even earn. Many of them are manufacturers, while some are exporters. 

    These are brands that do not have expertise to come to the mall. First, they claim that they are manufacturers and they do not understand the business of retail. Second, they do not understand the concept of rent and revenue-sharing. Third, those who do have an appetite to take risk do not approach any mall because they are afraid that mall operators will deny entry to them. They are happy running a successful business. We need to assist these brands with our expertise so that they can easily step into retail. That is what we do by offering our expertise; I offer a revenue-share model to the retailers.

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    RBI can increase interest rates to tame price rise: Rangarajan

    Making a case for reduction in money supply, C Rangarajan, also a former governor of the RBI, said that the apex bank could raise the cash reserve ratio (CRR)

    The Prime Minister's Economic Advisory Council chairman, C Rangarajan, on Monday suggested that the Reserve Bank of India (RBI) could reduce money supply and raise interest rates to tame the rising prices of food articles, reports PTI.

    "If price decline does not happen in December, then early steps could be taken. The RBI could increase interest rates. (It) preferably could reduce liquidity by acting on CRR,” he said.

    Mr Rangarajan was responding to a question on what measures the RBI should take to moderate food inflation, that has climbed to a 10-year high of 20% during the first week of December, driven mainly by higher prices of potato, other vegetables and pulses.

    Making a case for reduction in money supply, Mr Rangarajan, also a former governor of the RBI, said that the apex bank could raise the cash reserve ratio (CRR), the portion of amount that banks are required to keep with the central bank.

    Through a slew of measures, the RBI has injected liquidity into the system to help the cash-starved industry to combat the adverse impact of the global financial meltdown since September last year.

    The RBI governor, D Subbarao, had met finance minister Pranab Mukherjee on 18th December, fuelling speculation that monetary policy would be tightened.
    The RBI in October had raised the statutory liquidity ratio (SLR), the portion of funds that banks are required to park in government securities, to 25%, though it retained the CRR at 5%.

    The central bank will come out with its next monetary policy statement on 29 January 2010.

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