Sebi’s Directive Causes BSE Shares to Plummet 17%, Company Contemplates Response

Shares of BSE Ltd plummeted over 17% in Monday’s trading session, marking its largest intraday decline on record. This drop was triggered by Securities and Exchange Board of India‘s (Sebi) notice to the exchange, directing it to base regulatory fees on the notional value of its options contracts rather than the premium value.

In a recent communiqué, Sebi specified that BSE is required to pay the total regulatory fees, coupled with 15% interest, derived from the annual turnover. This consideration must now account for the ‘notional value’ of the options contracts, resulting in higher regulatory fees for the exchange.

Analysts from Jefferies India noted that the move could impact the company’s earnings per share by 15-18%, given that derivatives comprise approximately 40% of BSE’s estimated profits for FY25 and FY26.

Trading at a low of ₹2,612 earlier in the day, BSE shares clawed back some losses to trade at ₹2,792, down more than 13% on the National Stock Exchange. The discussion on the validity of Sebi’s claim is ongoing within the company following this directive.

Jefferies projected a one-time arrears impact of ₹165 crore plus taxes and an EPS cut of 15% for FY24 due to this shift in fee calculation. The impact is expected to continue in FY25 and FY26, reducing EPS by 15-18% amidst increasing derivatives revenue share.

HDFC Securities opined that BSE may face higher regulatory fee burdens compared to National Stock Exchange (NSE) due to differences in fee structures. BSE collects lesser premium compared to NSE and offers lower options pricing to clients.

Various estimates suggest that BSE could owe approximately ₹100 crore, ₹250 crore, and ₹310 crore for FY24, FY25, and FY26 respectively, representing 13%, 21%, and 22% of the company’s projected net profit in these years.

This shift in regulatory fees calculation methodology is anticipated to have significant financial implications for BSE, requiring reassessment of its pricing structures. The due date for regulatory fee payment for FY24 is April 30, and BSE management is actively strategizing its response to this development.

The substantial increase in notional volumes for BSE warrants a review of its fee model, adoption of more favorable pricing strategies, and potential cost optimizations to mitigate the financial repercussions of Sebi’s directive.