NSE, BSE face profit risk from proposal for clearing firms

India’s two leading stock exchanges may face a decline in profits if the country’s stock market regulator moves forward with proposed changes to the ownership structure of clearing houses. The Securities and Exchange Board of India (SEBI) is currently seeking public feedback on a recommendation that clearing houses diversify their ownership, turning them into "independent, self-sufficient public utilities" as part of an effort to enhance the stability of the market's infrastructure, according to a discussion paper released on its website.

This shift could impact the earnings and costs for both the National Stock Exchange of India Ltd. and BSE Ltd., which separately operate the nation’s two largest clearing corporations. SEBI has put forth two options for how the exchanges can diversify their current ownership: either a complete 100% divestiture of the relevant holdings or initially offloading a 49% stake to existing shareholders, with a phased reduction of exchange ownership to 15% over an unspecified period. The regulator appears to favor the first option and is inviting public comments until December 13.

These proposals come as another challenge for stock exchanges in India, which are already grappling with a significant revenue hit due to the recent implementation of stricter derivatives trading rules. In the six months leading up to September, BSE’s clearing firm, Indian Clearing Corp., contributed 19% to the bourse’s net income, while NSE derived approximately 17% of its profit from NSE Clearing Ltd., according to data compiled by Bloomberg.

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