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Sanjiv Shankaran

CHENNAI, April 1

SMALL towns have grabbed market share from Mumbai and Delhi in the futures & options (F&O) market. Data on derivatives turnover released by the National Stock Exchange (NSE) for February 2003 indicates that the combined market share of Mumbai and Delhi dropped to 63 per cent from 73 per cent in the preceding month. The drop in market share came in the backdrop of a 16-per cent fall in total F&O turnover to Rs 49,395 crore.

Participants in derivatives market offer a variety of reasons for the development, but a frequently cited one is that trading in F&O is gaining popularity in smaller towns. The NSE data appears to support the explanation. For instance, cities classified as "others" had seen a sharp rise in market share to 18 per cent in February from 7 per cent in January 2003. In contrast, metros such as Kolkata and Chennai had registered a marginal increase in market share during the same period.

"Mumbai and Delhi are highly saturated with tough negotiations for brokerage. Major brokers are shifting to smaller towns where brokerage is higher, and clients less exposed to derivatives", explained a Mumbai-based derivatives analyst.

The tendency to search for new markets is confirmed by Chennai-based derivatives participants. According to a sub-broker in the derivatives segment, brokers are increasingly looking for clients in small towns. The primary reason for the move into smaller towns is to quicken the return on initial investment in the derivatives business, said the sub-broker.

Another explanation offered centres around the price and volume trend in equities in the three months preceding February 2003. According to an analyst, open interest positions increased in November 2002 and peaked in the last week of December. Subsequently investors, especially those in Mumbai and Delhi, gradually offset their exposure. The same showed up in the form of a decline in the market share of Mumbai and Delhi said the analyst.

A related explanation is linked to the increase in margins for a few single stock future contracts over the last few months. A broker suggested that the rising margin has squeezed liquidity out of regular investors in Mumbai and Delhi, and increased the relative contribution of other towns that currently have limited exposure to F&O market.

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