BSE committed to interoperable clearing
The Bombay Stock Exchange (BSE) remains firmly
supportive of interoperability between India’s two securities clearing houses –
an option currently under review by the Securities and Exchange Board of India –
and is optimistic regulatory approval will offer a big boost to smart order
routing volumes, according to the bourse’s chief business officer, Balasubramaniam
“BSE is of the view that a single corporation might not be the only good
thing to do. We prefer an interoperable model. We already have two depositories
in India and they operate on an interoperable basis – that is primarily what we
are pushing for,” Venkataramani told TheTRADEnews.com
during the tenth Asia Pacific Trading Summit of FIX Protocol held in Hong Kong
on 8 May. “Once that happens, the costs of clearing will
go down significantly because the cost of clearing is about posting margins,
collaterals. Once you can trade on multiple exchanges, you’re going to see an
explosion of arbitrage volumes.”
Noting an “explosion” in electronic trading
volumes in India over the past 6-8 months, Venkataramani said most of the local brokers in India are also embracing electronic trading
and they are looking at putting servers in the colocation, trying to get more
executions at the best possible price.
The need for
interoperability between the clearing houses owned by India’s two equities
markets – the National Stock Exchange (NSE) and the BSE – has become more
apparent since SEBI authorised smart order routing (SOR) in 2010.
SEBI initially permitted SOR in India’s cash equities markets in August 2010
but then issued a further circular in December to clarify
that routing between stock markets was allowed for all order types.
However, the potential
savings to investors’ trading costs from being able to route between exchanges
in pursuit of best price is offset by India’s high post-trade fees, which stem
largely from the absence of interoperability at the clearing level. A further
barrier is that many front-end trading systems used by buy-side trading desks
in Asia are unable to split an order that is executed across two venues for
Both the NSE and BSE are
vertically integrated exchanges which own stakes in both clearing and
settlement facilities. Competition and interoperability already exists between
Central Depository Services (India) – the central securities depository partly
owned by the BSE – and National Securities Depository, in which NSE has a stake.
But there are no similar arrangements between the BSE’s Bank of India
Shareholding and the NSE’s National Securities Clearing Corporation.
India, we have a multiple exchanges environment, so there’s a competition
framework already created,” Venkataramani
The BSE, which has a
smaller share of Indian equities trading, has all along been markedly more
supportive of moves toward clearing interoperability than the NSE because the
latter believes any interoperability arrangement would have to take into account
risk management implications.
Prior to joining BSE, Venkataramani was part of the core team
involved in setting up the NSE and played a key role in the setting up of the
NSE’s trading systems for the equity segment, creation of indices (Nifty 50),
introduction of the certification program and equity derivatives market segment
of the NSE.