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Goldman Sachs has revised its target price for BSE Ltd., Asia’s oldest stock exchange, following regulatory proposals by the Securities and Exchange Board of India (SEBI) that could impact proprietary trading activity.
The global brokerage firm reduced its target price for BSE shares to ₹4,880 from ₹5,650 while maintaining a neutral stance. Analysts at Goldman Sachs highlighted that proprietary traders account for nearly 70% of BSE’s average daily turnover, making the exchange particularly sensitive to regulatory shifts.
SEBI’s Proposed Changes in Risk Computation
On February 24, SEBI released a consultation paper outlining changes to how risk exposure is assessed in equity derivatives markets. The key proposal involves shifting from the existing notional-value method for computing open interest (OI) to a future-equivalent or delta-based approach. OI represents the total number of outstanding derivative contracts in the market.
According to SEBI, the proposed changes aim to curb potential market manipulation and better align derivatives trading risk with liquidity in the cash market.
Impact on Market Participants
The regulator also suggested new risk-management measures for index derivatives. A market expert noted that with improved risk assessment, the likelihood of entities holding disproportionately large positions in index options—while reporting relatively low OI—would be significantly reduced.
“This refined risk measurement, along with the proposed minimum standards for constructing F&O indices, should help mitigate both real and perceived risks of market manipulation and excessive volatility across the cash and derivatives markets,” the expert added.
Implications for the Broader Market
Goldman Sachs anticipates that the industry’s options premium to cash equity turnover ratio will decline from 0.4x to 0.3x due to these regulatory changes. Consequently, the market share of index options contracts in terms of daily traded premiums is unlikely to exceed 30%, compared to 22% in February.
While the full impact of SEBI’s proposals remains to be seen, the anticipated adjustments signal potential shifts in trading dynamics, particularly for exchanges with heavy reliance on proprietary trading activity.
