BSE Shares Decline 17% After Sebi Order; Biggest Single-Day Decline Since Listing

Key Points

• BSE's share price drops 17% after SEBI's directive.
• SEBI instructs BSE to pay regulatory fees based on notional value of options contracts.
• Analysts estimate demand for higher fees could reduce BSE's earnings per share by 15-18%.
• BSE evaluating validity of SEBI's claim; total differential regulatory fees could amount to Rs 68.64 crore plus GST.
• Jefferies downgrades BSE's stock rating; higher regulatory fee could limit short-term growth potential.
• BSE exploring strategies to mitigate negative impact on financials.
• Despite challenges, BSE remains optimistic about future prospects.

Introduction

• Bombay Stock Exchange (BSE) experiences a 17% drop in share price.
• This follows a directive from Securities and Exchange Board of India (SEBI).

SEBI's Directive

• SEBI instructs BSE to pay regulatory fees based on notional value, not premium value.
• Notional turnover refers to total strike price of each contract traded in derivatives.
• Premium turnover refers to total premium paid on all contracts traded.
• SEBI demands total regulatory fees with 15% interest based on annual turnover, considering notional value of options contracts.

Financial Impact

• Analysts estimate demand for higher fees could reduce BSE's earnings per share by 15-18%.
• Derivatives contribute around 40% of BSE's estimated net profits for FY25 and FY26.

BSE's Response

• BSE is evaluating the validity of SEBI's claim.
• Total differential regulatory fees from FY 2006–07 to 2022–23 could amount to approximately Rs 68.64 crore plus GST, including Rs 30.34 crore in interest.
• For FY24, regulatory fee payment due on April 30, 2024.
• BSE has already paid premium-based fee of approximately Rs 1.66 crore plus GST but may owe additional Rs 96.30 crore plus GST if found liable.

Market Impact

• Jefferies downgrades BSE from "Buy" to "Hold" and reduces target price for BSE's stock to Rs 2,900 from Rs 3,000.
• Higher regulatory fee could limit BSE's short-term growth potential.
• SEBI's directive might reduce BSE's EPS by 15-18%.

Future Strategies

• BSE exploring strategies like potential price hikes and improvements in premium quality.
• Aim to mitigate negative impact on financials while maintaining market position and regulatory compliance.

Overview :

• Despite challenges, BSE remains optimistic about future prospects.
• Will navigate challenges while ensuring regulatory compliance and market stability.