BSE Shares Drop 17% After SEBI Order: Biggest Drop Since Listing

BSE share price slumped more than 17% in Monday's trade, their biggest intraday decline on record, after the markets regulator Securities and Exchange Board of India (SEBI) directed the exchange to pay regulatory fees based on the notional value of its options contracts, rather than the premium value.

BSE share price declined as high as 17% in the early trade. However, at 9:50 am, the BSE shares were trading ₹498.35 lower or 15.52% at ₹2,715 apiece on the NSE. Traded volumes stood at 10.11 million shares.

On Friday, BSE in its filing to the exchanges said the SEBI has asked it to pay a regulatory fee based on the annual turnover fee considering “notional value” (instead of premium turnover) in the case of the options contract.

SEBI has also asked BSE to pay a differential regulatory fee for the past periods with applicable interest of 15% per annum on the amount remaining unpaid or belatedly paid or short paid for every month of delay.

In an options contract, the notional value is the underlying asset's market price multiplied by the specified amount of the contract. BSE had calculated the annual turnover based on the premium value for options contract.

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.

US 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%.

“BSE is currently evaluating the validity, or otherwise, of the claim as per SEBI communication,” BSE said in an update following the directive. “In case, 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 ₹68.64 crore plus GST which includes interest of ₹ 30.34 crore," BSE added.

The Jefferies report has also indicated a one-time legacy arrears impact of ₹165 crore plus taxes (18%) will result in a 15% earnings per share (EPS) cut for FY24. As derivatives revenue share rises to an estimated 45% by FY27, these increased regulatory fees could further impact EPS by 15-18% in FY25 and FY26.

An HDFC Securities Institutional report has said that BSE's regulatory fee burden will be higher than that of the National Stock Exchange (NSE), as BSE collects one-third the premium for similar notional volumes and its options pricing is one-fourth lower than NSE's.  

HDFC Securities estimates that BSE will have to pay a regulatory fee of ₹100 crore, ₹250 crore and ₹310 crore, which is around 13%, 21% and 22% of the company's estimated net profit of FY24, FY25 and FY26, respectively.