Total misuse of monopolistic gift...: Why Shankar Sharma makes a case for regulating profits of BSE and NSE

Shankar Sharma Flags Monopoly Misuse by BSE and NSE

Veteran investor and market commentator Shankar Sharma has stirred a fresh debate in India’s capital markets by accusing the country’s leading stock exchanges—the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)—of misusing their monopolistic positions. In a strongly worded statement shared via social media and in a follow-up interview with business media outlets, Sharma termed the exchanges' massive profit margins a "total misuse of a monopolistic gift" and urged the Securities and Exchange Board of India (SEBI) to step in with regulatory action.

His remarks come amid a period of significant profitability and rising valuations for both exchanges, particularly BSE, which has seen its stock surge over the past year.

Sharma’s Core Argument: Exchanges Are Public Utilities

Shankar Sharma likened stock exchanges to public utilities such as electricity or water providers. According to him, these institutions serve a public function and are granted the rare license to operate in a space with virtually no competition. He believes this unique privilege should come with regulatory oversight over how much profit they can make.

“These are not typical corporations. Exchanges are natural monopolies operating with enormous regulatory privilege. The least they can do is not overcharge for services or rack up egregious profits,” Sharma said in an interview.

He cited NSE’s near-monopoly on derivatives trading and BSE's recent resurgence in equity volumes as cases where pricing power has been exercised without sufficient accountability.

The Numbers: High Margins Raise Eyebrows

In the fiscal year 2023-24, NSE posted a net profit of over ₹7,300 crore, with operating margins exceeding 70%, while BSE reported a nearly 3x jump in net profit to ₹566 crore, driven by increased trading volumes and revenue from its mutual fund distribution platform.

Sharma argued that these profit levels are disproportionately high for entities that are essentially "toll operators" of financial highways.

“These platforms charge for access and data—things they got for free or at negligible cost. Meanwhile, small brokers and investors are paying high transaction fees, while the exchanges enjoy windfall gains,” Sharma said.

Market Reactions and Analyst Views

While Sharma’s comments have divided opinion in the financial community, many analysts agree that the issue warrants scrutiny, especially in light of recent investor activism and calls for greater market democratization.

Nikhil Kamath, co-founder of Zerodha, responded on social media saying:

“Monopolies in any sector must be questioned. Exchanges enjoy powerful network effects that automatically eliminate competition. Some regulation of fees and margins could create a fairer playing field.”

Others, however, believe Sharma's remarks could undermine investor confidence in listed exchanges and threaten capital markets’ efficiency.

“While regulatory oversight is important, capping profits arbitrarily might deter innovation or technological upgrades in trading infrastructure,” noted Sonal Arora, equity strategist at a Mumbai-based brokerage.

SEBI’s Role and Possible Reform Measures

The spotlight is now on SEBI, the market regulator, which in the past has implemented reforms to enhance transparency and competition in the trading ecosystem. SEBI has introduced platforms like T+0 settlement and is encouraging interoperability between clearing corporations to reduce entry barriers for new players.

Sharma recommends that SEBI:

• Regulate trading and data fees levied by exchanges

• Cap profit margins in line with global standards for essential infrastructure

• Encourage competition by licensing alternative trading systems (ATS)

• Enforce public service obligations for investor education and cybersecurity

“Let exchanges make a profit—yes. But not supernormal profits. That goes against the very principles of free and fair markets,” Sharma emphasized.

Global Parallels: Are Indian Exchanges Outliers?

Globally, exchanges like the New York Stock Exchange (NYSE) and London Stock Exchange (LSE) are also highly profitable but operate in more competitive environments. The U.S. market, for example, has multiple exchanges and dark pools, which dilutes pricing power.

In contrast, India's NSE commands nearly 92% market share in derivatives and a significant share in cash equities, giving it a unique dominance. This lack of competition, Sharma argues, breeds inefficiencies and rent-seeking behavior.

Investor Outlook: What Should Stakeholders Expect?

Retail and institutional investors alike will be closely watching whether SEBI responds to Sharma’s call for reforms. While no official statement has been issued yet, there is growing public discourse on whether India’s capital market infrastructure is serving all participants fairly.

From an investment standpoint, shares of BSE and CDSL have surged in 2024, driven by increasing demat account openings and higher market participation. Any regulatory changes to pricing structures could impact revenue visibility and valuations.

“Investors should not expect overnight reforms but should definitely factor in regulatory risk while evaluating exchange-related stocks,” said Pratik Daga, senior analyst at FinQuest Securities.

Shankar Sharma’s critique of BSE and NSE's monopolistic conduct has reignited an important conversation about profit vs. purpose in India’s financial infrastructure. Whether his call leads to regulatory changes remains to be seen, but the broader question is clear: Should entities that serve a public financial function be allowed to extract unlimited profits, or should their power come with greater accountability?

As India’s capital markets mature and attract global attention, how the country handles this issue could set a precedent for balancing profitability with public responsibility.