What were the factors that led to a 17% drop in BSE's share price today, marking its largest single-day decline since its listing?

Today, the Bombay Stock Exchange (BSE) experienced a significant decline of over 17% in its share price during morning trading, marking the largest single-day drop since its listing. This decline is attributed to the market regulator SEBI (Securities and Exchange Board of India) requiring BSE to pay higher regulatory fees for derivatives, based on notional turnover rather than premiums.

According to analysts at Jefferies India, this demand for higher fees could impact BSE's earnings per share by 15-18%, considering that derivatives contribute approximately 40% of BSE's estimated net profits for FY25 and FY26.

The issue arose as SEBI requested BSE to pay regulatory fees based on the yearly turnover calculated from the 'notional value' of its options contracts, leading to scrutiny of the stock. BSE had initially computed the annual turnover based on the premium value for options contracts.

BSE disclosed that the total regulatory fees, along with 15% interest, are to be paid to SEBI based on annual turnover considering the "Notional Value" in the case of Option Contracts. If deemed payable, the total differential SEBI regulatory fees for past periods from FY 2006-07 to FY 2022-23 could amount to approximately ₹68.64 crore plus GST, including interest of ₹30.34 crore.

The deadline for payment of SEBI regulatory fees for FY 2023-24 was April 30, 2024, with BSE already paying approximately ₹1.66 crore plus GST based on premium turnover. The potential differential SEBI regulatory fees for the year could be around ₹96.30 crore plus GST.

Jefferies analysts noted a one-time impact of legacy arrears (since 2006-07) amounting to Rs165 crore plus taxes (18%), leading to a 15% cut in earnings per share for FY24. With derivatives expected to constitute around 45% of overall revenues by FY27, these increased regulatory fees in the options business may affect earnings per share by 15-18% in FY25 and FY26.