MCX shares tumble over 7% after being told to cough up more regulatory fees

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

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Shares of Multi Commodity Exchange of India Ltd. (MCX) plunged up to 7% in Monday’s morning trade amid heavy volumes after the capital markets regulator SEBI asked the exchange to pay the regulatory fee based on the notional value of its options contracts and not based on the value of the premium value.

At 10:30 am, the scrip was trading 3.95% lower at ₹4,003.00 apiece on the NSE. Despite the drop, the stock has risen nearly 200% in the last one year.

BSE Ltd. and MCX will now have to pay regulatory fees to the Securities and Exchanges Board of India based on annual turnover calculated from the notional value of options contracts.

MCX has been asked to pay a differential fee of ₹4.43 crore.

BSE, MCX’s peer company, has also been asked to pay a differential fee of ₹165 crore, of which ₹69 crore is from the financial year 2007 to the financial year 2023, and ₹96 crore for the financial year 2024.

Stock exchanges must remit a regulatory fee to the board within 30 days following the end of the financial year. The regulatory fee rate is determined by the annual turnover of the stock exchange, defined as the total value of transactions conducted throughout the financial year.

The notional value in an options contract is the underlying asset’s market price multiplied by the specified amount of the contract. For example, if one options contract represents 200 shares of a stock that trades at ₹100, the notional value would be ₹20,000.

The stock of BSE Ltd. also tumbled as much as 18% today, its biggest single-day drop since the stock has seen since its listing in 2017.

Global broking firm Jefferies writes that higher fees could hit overall Earnings Per Share (EPS) by 15-18%, whereas Morgan Stanley doesn’t expect any meaningful impact.

“As derivatives volume growth remains ahead of estimates, price hikes and improved premium quality can fully offset the EPS impact,” the brokerage noted.

Jefferies has downgraded BSE Ltd’s stock to ‘hold’ from its earlier rating of ‘buy’ and has also slashed its price target to ₹2,900 from ₹3,000 per share earlier. It has cut its financial year 2025 and 2026 estimates by 6% to 9%.

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