BSE has been a star performer, generating over 4x wealth for its investors in the past year. However, it is down 19% from its all-time high this month on a recent SEBI order.

Market regulator SEBI asked BSE to pay a hefty sum in pending regulatory fee on the notional value of its annual turnover (of options contracts) rather than the premium value.

The notional value is the total value of the underlying assets in a derivatives contract. It is calculated by multiplying the number of contracts by the underlying asset’s price.

If you have 20 option contracts of 100 shares each, and the share is priced Rs 50 in the cash market, the notional value of these contracts will be Rs 100,000 (2000 x 50).

The premium value measures the size of a contract in terms of the actual money spent on trading it. You derive it by multiplying the premium per option by the number of contracts.

If an option has a premium of Rs 5 and 20 options are traded, the premium value of these contracts will be Rs 100 (5 x 20). Thus, the premium value is always lower than notional.

BSE has been paying its regulatory fee on the premium turnover rather than notional, as required by SEBI. Thus, it needs to pay Rs 195 crore for the dues of the last 18 years.

The dues are not the only bad news. The diktat could end BSE’s unique cost advantage over its rival NSE. To know how, you can head to our story from the link below.