BSE shares settle over 13% lower on increase in regulatory fees; check out the impact
BSE share price: Reacting to the development, Jefferies has double-downgraded the stock to hold from buy, and the target price has been cut to Rs 2,900 and Rs 3,000.
BSE share price: Shares of BSE cracked as much as 18.6 per cent to Rs 2,612.10 apiece on the NSE on Monday, April 29, as capital market regulator Sebi wrote a letter to the exchange in which it asked the company to pay higher regulatory fees for option contracts. Sebi said that BSE has to pay the regulatory fees on option contracts based on their notional value and not on the premium value. It was the biggest single-day fall of the company's shares since listing.
The stock ended at Rs 2,783, down 13.31 per cent.
In a little detail, Sebi has directed the BSE to pay regulatory fees on annual turnover for option contracts and said that the annual turnover must be computed based on the notional value. Further, Sebi observed the following:
- The regulatory fee paid to the Board for FY 2006–07 was for a quarter rather than for the full financial year, and
- Since the introduction of derivative contracts, BSE (including the erstwhile United Stock Exchange (USE), which merged with BSE during FY 2014–15), has been paying the regulatory fee on "Annual Turnover" to the Board, considering the premium value for option contracts instead of the notional value.
Considering this, Sebi has asked BSE to pay the differential regulatory fee (including the differential regulatory fee of USE, if any) for the past periods along with applicable interest (i.e., 15% per annum on the amount remaining unpaid, belatedly paid, or short paid for every month of delay or part thereof to the Board) within one month from the date of receipt of this letter.
Difference between notional and premium values
Notional value is the total value of the underlying asset in a contract, while the premium value is the price the option buyer pays to the seller for the right to buy or sell an underlying asset at a predetermined price.
Impact of the action on the BSE
In a separate filing, the BSE said that the company is currently evaluating the validity, or otherwise, of the claim as per Sebi communication. If it is ascertained that the said amount is payable, then the total differential Sebi regulatory fees for the past periods, i.e., from FY 2006–07 to FY 2022–23, would be approximately Rs 68.64 crore plus GST, which includes the interest of
Rs 30.34 crore.
It further said that the due date for payment of the Sebi regulatory fee for FY 2023–24 is April 30, 2024. The amount payable as per premium (turnover) is around Rs 1.66 crore plus GST, which has been paid by the company. The differential Sebi regulatory fees for the year, if liable, could be around Rs 96.30 crore plus GST.
Reacting to the development, Jefferies has double-downgraded the stock to "hold" from "buy," and the target price has been cut to Rs 2,900 and Rs 3,000.
As per Zee Business Research, the regulatory fee is 21 per cent of the adjusted profit for FY25. It further notes that if transaction charges increase by 25 per cent and clearing charges by 10 per cent, then the impact will be just 2–5 per cent. Moreover, it is estimated that an increase in fees is expected to impact earnings per share (EPS) by 15–18 per cent.
NSE pays tax on notional value.
It must be noted here that Sebi had introduced the 'regulatory fee' on recognised stock exchanges vide the Securities and Exchange Board of India (Regulatory Fee on Stock Exchanges) Regulations, 2006, wherein the stock exchanges would have to pay a regulatory fee to the Board within thirty days of the conclusion of the relevant financial year.
The rate of the regulatory fee was based on the annual turnover of a stock exchange. The term "annual turnover" means the aggregate value of transactions that took place on the stock exchange during the relevant financial year. Such regulatory fees continued to be mandated under the provisions of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 ('SECC Regulations').
What experts say
The regulatory action will have a significant impact on BSE's profitability. Moreover, NSE has taken aggressive moves in the derivatives segment recently. On the other hand, BSE is overvalued at its current price, says G Chokkalingam, founder of Equinomics Research. "Hence, maintain the 'Sell' call on BSE," the expert adds.
BSE shares have given multi-bagger returns in the past 12 months. The stock price has jumped 442 per cent during the period.
MCX shares too under pressure
MCX shares were also reeling under pressure due to the same reason. The commodity exchange said that the differential Sebi regulatory fees for the past periods, i.e., from FY 2017–18 to FY 2022–23, amount to around Rs 1.43 crore (plus applicable taxes). The company has to pay the amount within one month from the date of receipt of the letter, i.e., on or before May 25, 2024.
Reasons for delay or default in payment
MCX said that, following industry practice, the company was paying Sebi regulatory fees on the aggregative value of transactions, i.e., on premium (turnover) value in the case of option contracts since their introduction during the fiscal year, FY 2017-18.
The company is currently evaluating the letter. If the said amount is payable, then the total amount due would be approximately Rs 1.77 crore. (i.e., differential regulatory fees for the past period from FY17–18 to FY22–23, approx. Rs. 1.43 crore + interest @ 15% p.a. on the same till date, approx. Rs. 0.34 crore).
It further said that the due date for payment of the regulatory fee for FY 23–24 is April 30, 2024. The amount payable as per premium (turnover) is approximately Rs. 1.56 crore, and the differential Sebi regulatory fees are approximately Rs. 2.66 crore (plus applicable taxes).
The stock ended at Rs 4,062.70, down 2.52 per cent on the NSE.
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