BSE Limited — Q1 FY26 earnings call

The contract size has gone up. When the contract size goes up, the value traded goes up. And in times of volatility, which we saw in the last quarter, as you would appreciate, because of multiple reasons, including global issues with regard to people fighting with each other, countries fighting, trade tariffs etc. So, because of the volatility, the premium traded when it goes up, that is one thing, where the revenue goes up. When the contracts continue to grow, but the contracts are of larger size, so larger volume processed with lesser cost and larger revenue because of increased premium, this results in clearing and settlement cost as a percentage of revenue coming down.

Analyst questioned the sequential decline in clearing and settlement costs despite stable contract numbers. Management clarified that increased contract size, higher premium due to volatility, and a shift from expiry-day to non-expiry day volumes led to lower costs relative to revenue.

Asked by Prayesh Jain

As you would appreciate in India, regulatory process is a consultative co-created process. We are not big enough to advise the regulators. But certainly, when there is a consultation, we do participate and we give our views, which helps in shaping up the regulatory atmosphere. In respect of derivatives, regulations have been a very evolving thing in the recent past particularly.

Analyst probed on the regulatory stance regarding further derivative regulations, especially concerning retail participation and potential losses. Management emphasized the consultative nature of the process but refrained from predicting specific future regulations.

Asked by Devesh Agarwal

That is too early for us to comment, we have to wait for some more time to understand how it evolves.

Analyst asked about the likely impact of the recently implemented Phase-2 or Derivative 2.0 regulations on option volumes. Management stated it was too early to assess the impact, indicating uncertainty or a wait-and-watch approach.

Asked by Devesh Agarwal

As far as the question on the participation, the HFTs contribute for around 35% and the retailers contribute a bit shy of 25%-26%. The remaining comes from the prop and other traders. You asked a question about what is the mix of long-term versus the current week expiry volumes. As you would appreciate, BSE is a very late entrant into the derivative journey. Building long-term contracts is an effort and it takes time. It was, first of all, very big effort for us to build the weekly volumes itself. What we must say is the weekly volumes have grown well and the next week and next week volumes are picking up. Other than current week volumes, currently hover between 2% to 2.5% on a regular basis and our feeling is that with the type of effort that we are putting, we will be able to grow the mix more towards the other than weekly options and our efforts are on in this direction.

Analyst sought clarity on the composition of options volumes. Management provided a breakdown of participant types (HFTs, retail) and acknowledged the low share of long-term/non-weekly contracts (2-2.5%), indicating a strategic focus on increasing this mix.

Asked by Amit Chandra

See, the co-location, as I told you, we have allotted 350 racks already. We will not know how many of them are fully utilizing it from whatever our estimate is at least 75% to 80% of it is being used because we see some of the racks getting populated. But we will be coming out with some 140 racks further. ... So, Rs. 12 lakh per annum for a 6 kVA rack and I think Rs. 25 lakhs is for a 15 kVA rack. Roughly around 10% of the total racks would be around 15 kVA racks. So, you can estimate revenue based on that. I think roughly it should be around Rs. 12 crores for quarter one. That is my rough estimate.

Analyst inquired about co-location utilization and revenue. Management provided details on allotted racks (350, 75-80% utilized), future expansion (140 more racks), and estimated Q1 revenue of approximately ₹12 crores, offering specific financial insight into this service.

Asked by Neeraj Toshniwal

Honestly, I don't have an answer for this question as to what you call a second order impact because Jane Street order came at least some 10-15 days before now, I guess. And whatever impact we are seeing, we are not seeing any specific impact arising out of Jane Street at least as what we could recognize. It is more of the market factors that are dealing with it. Co-location requirement would be based on what the demand and supply is and what the utility of the product. I think at this point of time, our estimate is we are better off with whatever number of Colo racks that we are manufacturing now. And I think that should take us for a good while. So that is what our estimated demand. This estimated demand is not after Jane Street. It is much before we have planned it at the beginning of the year. And I think our plan stands well. That is the way we are looking at it at this point of time.

Analyst asked about the potential impact of the Jane Street regulatory issue on BSE's volumes, premium turnover, and co-location business. Management stated they had not observed a specific impact from this event and that their co-location expansion plans were independent of it.

Asked by Shalabh Agrawal

If you are able to see, in Q1 FY'24, we had 200 members. Today, we are having around 528 members. We had less than 1 million, around probably only 1 lakh investors we had, 1 lakh UCCs we had in Q1 FY'24. It has become 7.9 million, that is 79 lakhs in terms of registered people as of now. Probably in Q1 FY'24, we had less than 10-15 FPIs with us. Today, we are talking about 330 FPIs. There has been a significant growth in terms of member participation, market participation in this one year.

Analyst inquired about the growth in market participants. Management provided specific figures showing significant growth in members (from 200 to 528), UCCs (from 1 lakh to 7.9 million), and FPIs (from 10-15 to 330) over the past year, highlighting increased market penetration.

Asked by Rattan Joneja