Published On: Thu, Apr 22nd, 2010

Something Is Afoot At The Bombay Stock Exchange

detectiveIf you have been following electronic trading in Asia and particularly in India you would have noticed all the activity of late coming out of the Bombay Stock Exchange (BSE). Since the beginning of this year they have changed pricing to a maker-taker model, launched co-location, added another clearing and settlement bank, entered into mobile trading, appointed a new chairman, appointed an executive from Deutsche Boerse to their board, engaged NYSE Technologies to manage their price feed infrastructure and are 15% owners of the newly launched United Stock Exchange (USE). What is going on?

The BSE is India’s oldest exchange, a product of colonial Britain, and has been fighting a losing battle for market share in India against its arch rival the National Stock Exchange (NSE) for quite sometime. Given the activity in the past 4 months, however, they look set to bring the battle to the NSE and wrest some of that market share back.

The appointments of Mr. S Ramadorai and Andreas Preuss to the board are strategic. Andreas brings his deep understanding of the competitive exchange business in Europe and Mr. S Ramadorai was the former CEO of Tata Consultancy Services the largest technology services company in India. Coupled with NYSE Technologies and Mr. S Ramadorai technological savvy the BSE is making a commitment to technology critical to any competitive electronic trading industry.

Granted colocation is nothing new in Asia but no other exchange in APAC applies maker taker pricing or offers mobile trading for that matter (OK Vietnam offers mobile but you get my point)

Perhaps one might say that India needs some consolidation and perhaps that might be true in its commodity markets but in this age of openness and competitive trading venues India’s equity markets may be further along than has been generally attributed to them. We all know regulations are still erroneous and bloated with bureaucracy but the kinds of activity we have been seeing there leads me to believe India’s electronic trading industry is Asia’s dark horse.

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  1. Ankit Makoday says:

    Hello,

    Very well written piece and excellent observations too.

    But I would want to add the following points also.

    1. BSE was the exchange who came up with reforms and electronic trading platform.

    2. Lately BSE has been slow in implementing changes on their end in last 5-6 years , but i am sure these reforms on BSE side are definetly in the pipeline and more will follow with Andreas

    3. One more interesting thing to note would be, Financial Technology services is planning to come up with a new equity exchange. It would be curios too see how things shape up after that move.

    Ankit.

  2. Shamsher Ali says:

    Hi Ankit,

    You mentioned in point 3 that “Financial Technology services is planning to come up with a new equity exchange.” do you have more info on this.

    Regards

  3. Steve says:

    Thanks for the feedback!

    @Ankit for point 3 is that the United Stock Exchange?

    Also, the BSE just announced drastically reduced memberships fees

    http://www.asiaetrading.com/bse-reduces-membership-deposit-by-90-for-new-members/

  4. roopali jain says:

    It’s NSE vs. BSE & MCX (Financial technologies) for market share. NSE is not co-operating with software vendors for allowing ‘smart order routing’ feature for fear of losing out some volumes in the process. We are likely to see a joint effort by BSE / MCX to try and wrest volumes from NSE.

  5. Kunal Singh says:

    Unlikely that BSE will be able to catch up with NSE given their experience in derivatives. Given NSE’s quick strides in supporting DMA and algorithmic trading, the technology/product gap will get wider. With recent changes to the approval process, there is now a beeline of brokers lining up to take approval from NSE and run their automated trading systems. Can’t see much changing with regard to BSE and even MCX-SX in the short run. Even if NSE does cooperate on smart order routing, that may only be for the cash segment and a very limited victory for BSE. I think Mr Ramadorai and Mr Preuss have a very diffcult task ahead of them….cutting fees and membership charges just wont be enough……BSE needs a dramatic make over!!!

  6. Kunal Singh says:

    Given how far behind NSE it is, it will take something more than just transaction waiver and membership fee reduction to get things going. None of their initiatives have worked, especially in algo trading or DMA. NSE has moved far ahead of them and many institutiobal brokers are offering DMA/algo. Mere smart order routing won’t fix anything as cash volmues are any way much lower than derivs……

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