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HDFC Securities Institutional Equities
Clearing corporations play a crucial role in the exchange ecosystem. They are entirely owned by exchanges and perform essential functions such as clearing, settlement and risk management. The revenue from clearing corporations has registered a strong two year compound annual growth rate of 71% and constitutes ~8/15% of the exchange’s consolidated revenue and profits.
SEBI in its consultation paper related to the treatment of interest income by CCs has proposed that – interest income earned by CCs on the cash collaterals received from clearing members shall periodically be distributed to CMs.
The reversal of interest from clearing funds will have a negative impact on the exchange’s profitability. Given the uncertainty around whether the entire interest income or just the interest on idle funds will be reversed, we assume that only the interest earned on idle funds (clearing funds which have no underlying position) will be reversed.
If on average ~15% of the clearing funds are idle, the estimated impact on FY24 EPS for BSE and Multi Commodity Exchange of India is ~3.3/1.4% for FY24.
The maximum impact will be ~6.6/2.8% for BSE/MCX if we assume ~30% of the funds are idle.
We continue to like MCX within exchanges as it has minimum impact from the proposed regulatory changes related to clearing interest and restriction on speculative index options trading.
We have a Buy on MCX and increase our target price to Rs 5,000 (versus Rs 4,700 earlier) and maintain our Reduce rating on BSE.
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