BSE shares fall 18%, most since listing, on regulatory fees issue

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of the Bombay Stock Exchange (BSE) Ltd. declined as much as 18% on Monday. This is the biggest single-day drop since the stock has seen since its listing in 2017.

The stock was in focus after it was asked to pay its regulatory fee to market regulator SEBI based on the annual turnover calculated from the ‘notional value’ of its options contracts.

In an options contract, the notional value is the underlying asset’s market price multiplied by the specified amount of the contract. For example, if one options contract represents 100 shares of a stock that trades at ₹50, the notional value would be ₹5,000.

BSE had calculated the annual turnover based on the premium value for options contract. It has to pay the differential regulatory fee for the past period along with interest.

Premium value is the price at which the options holder gets the right to buy or sell the underlying asset at a predetermined price on a specified date.

BSE has been asked to pay a differential fee of ₹165 crore, of which ₹69 crore is from financial year 2007 to financial year 2023, and ₹96 crore for financial year 2024.

MCX, BSE’s peer company, has also been asked to pay a differential fee of ₹4.43 crore.

Brokerage firm Jefferies wrote in its note that derivatives make up for nearly 40% of financial year 2025 and 2026 profit estimates and that the higher fees can impact its Earnings Per Share (EPS) by 15% to 18%.

“As derivatives volume growth remains ahead of estimates, price hikes and improved premium quality can fully offset the EPS impact,” Jefferies wrote in its note.

The brokerage has downgraded the stock to “hold” from its earlier rating of “buy” also cut its price target to ₹2,900 from ₹3,000 earlier. It has cut its financial year 2025 and 2026 estimates by 6% to 9%.

Shares of BSE are trading 17% lower at ₹2,672. Despite the drop, the stock has risen over 400% in the last 12 months.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow