BSE Limited - What's driving the rally and what next ?

In the last 5 years, BSE Limited has gone up 60x. We analyze the reasons why the stock has rallied so sharply and what’s next ?

BSE Limited is a 150 year old stock exchange, but the business model of a stock exchange is amongst the simplest. Increased activity on the stock exchange means faster growth, so why has BSE gone up 60x when markets have gone up only 2.5x.

Let’s analyze the history of Stock Exchanges in India

• Since the formation of NSE, BSE’s market share in Cash Equities has falled from 95% + to ~5% in 2025.

• Similarly, as F&O started becoming more prevalent, NSE had the technology edge having a monopoly on F&O.

• Both of this resulted in BSE becoming a fringe number 2, with NSE having more than 95% market share of key segments and profits.

• What’s changed for BSE ? -

  • NSE co-location scam -

    • The National Stock Exchange (NSE) co-location scam involved the misuse of a facility where brokers could place their computers near the exchange's servers, granting them a significant speed advantage in executing trades. This unfair advantage allowed certain brokers, allegedly in collusion with some NSE officials, to gain a competitive edge, manipulating the market.

    • On April 30, 2019, Sebi came down heavily on NSE for alleged lapses in high-frequency trading offered through its co-location facility and directed to disgorge Rs 624.89 crore and barred the exchange from accessing the market for funds for six months.

• The above activity resulted in SEBI rethinking the risks of an exchange having disproportionate market share and the need for some balance of power.

• Options market share shift -

• Options market in India has exploded post covid. The monthly turnover in the Futures and Options (F&O) segment on the National Stock Exchange (NSE) escalated from ₹217 lakh crore in March 2019 to ₹8,740 lakh crore in March 2024 a 40x jump.

• Most of it was led by options and participation of retail led by low cost trading platforms.

• BSE was a fringe player in both Futures and Options with market share less than 1%.

• What changed ?

  • BSE has 0% market share till April 2023, however BSE

  • In May 23, they reduced lot sizes for Sensex and Bankex with a Friday Expiry

  • In August 23, BSE shifted Bankex expiry to Monday.

  • By March FY24, BSE had gained ~6% market share.

  • Further, In October 2024, SEBI issued a circular mandating that each exchange can offer derivatives contracts with weekly expiries on only one benchmark index, effective from November 20, 2024, to streamline expiries

    and reduce excessive speculation.

  • Bankex (Monday) and Sensex (Friday) expiry shifted to Tuesday. Bankex to last Tuesday of the expiry month. Difference in expiry dates has resulted in market share for BSE reaching ~18.8%, resulting in huge surge in profitability.

    

• What’s next ?-

• On May 26, In a circular issued, the regulator stated that each exchange will be permitted only one weekly benchmark index options contract, to expire on either a Tuesday or a Thursday.

• Currently, the NSE has weekly F&O expiry on Thursdays, while the BSE holds its expiry on Tuesdays. https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=7&smid=0

What can move the stock exchanges -

- Futures & Options is around 50% of revenues for BSE & For NSE it is ~65% of revenues and ~85-90% of profitability.

What will drive the next phase of growth for stock exchanges ? -

The answer is very simple, Options industry growth and where the market share settles -

• Should the weekly expiry’s for both BSE and NSE converge to a date, BSE may be at a big risk of losing gained market share, as products are fairly similar for both stock exchanges.

• If the Expiry’s will be spread out to Tuesday / Thursday, we need to see at what market share BSE settles at. Current notional market share stands at ~37%, with market anticipation of ~25-28% premium option market share. Any material deviation may result in further re-rating / de-rating of the stock.

• Regulatory change may shift major market share movements, keeping a track of what SEBI has proposed and what SEBI will do to curb/enhance the options market is a key monitorable.

• Disclosure - We are not registered under SEBI. All information above is based on public sources and due diligence conducted by us. We may or may not have invested in stocks which we have written about.

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