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Our Bureau

Mumbai, Nov. 14 Exactly a year after SEBI approved seven derivative products for the securities market, only three have been launched. But two of the launches — mini contracts and currency futures — have met with a fair degree of success.

The SEBI board at its meeting on November 14, 2007, had cleared the introduction of seven products — mini-contracts in equity indices, long-tenure options contracts, F&O contracts on the Volatility index, options on futures, F&O contracts on bond index, exchange-traded currency futures and exchange-traded products involving different strategies.

These products were considered for introduction on the recommendations of the Derivatives Market Review Committee (DMRC) headed by Professor M. Rammohan Rao.

Mini contracts were the first of the approved derivatives to be launched. Mini derivative contracts on Nifty that were introduced on January 1, 2008, have been fetching increasingly better response from market participants. In the mini-Nifty contracts the minimum lot size is 20. For the mini-Sensex contract, the minimum lot size is 5.

According to the recommendations of the DMRC the mini derivative contracts on Index (Sensex & Nifty) will have a minimum contract size of Rs 1 lakh to begin.

Mini-Nifty contracts have since seen a consistent rise in daily contracts trade as well as turnover.

On November 12, 1.29 lakh mini Nifty contracts worth Rs 751 crore were traded, against over 27,000 contracts worth Rs 286 crore traded on January 31, a month after its introduction. However, the performance of the BSE’s Mini-Sensex contract has not been so bright, as has been the case with Sensex Futures.

The second derivative product — Long-Term Options contracts on Sensex and Nifty with up to three years’ tenure — was introduced in March when NSE launched Long-Term options contracts with the Nifty December contracts with tenures of one, two and three years, with expiries available every quarter.

These contracts have met with lukewarm response, said a broker: “Also when short-term options contracts of up to three months’ tenures are yet to pick up in India, it is not surprising that long-term contracts are not fetching customers,” said an analyst.

The third introduction was not a trading product but the Volatility Index, which was introduced in April this year. However, derivatives on Volatility Index, which were also approved by SEBI, are yet to see the light of day.

Market participants said the Volatility Index has proved to be handy in indicating the near-term behaviour of the equity markets.

The latest derivatives product to be launched has been currency futures.

Exchange-traded currency futures were introduced towards the end of August on NSE and shortly afterwards on the BSE and the MCX Stock Exchange. This product has taken off much more swiftly because of a long felt need in the market for hedging foreign currency risks in small lots.

More than two months after currency futures were launched on NSE, volumes have grown nearly four fold on the exchange.

Mr Ashok Gautam, Chief Forex Dealer at Axis Bank, said: “It was a felt need for a long time, and the product fulfils the need of those clients who need to hedge small lots. Also, since the platform is exchange-driven, there is safety for everyone. The requirement of margins prescribed makes it secure.”

Initially the volumes were low on account of connectivity problems, lack of awareness among the trading members and their clients, as well as the fact that there was not enough liquidity, said Mr Gautam.

More than two lakh contracts worth more than Rs 1,000 crore are now being traded on NSE daily, from just 65,000 contracts worth Rs 290 crore during the initial days.

Currency futures volumes are equally high at MCX Stock Exchange, only a little over month after their launch.

In fact, MCX currency futures’ turnover at Rs 787 crore surpassed NSE’s Rs 706 crore last Tuesday. The turnover crossed Rs 1,000 crore on Friday at Rs 1,109.5 crore for MCX, while NSE clocked a turnover of Rs 1,116 crore; these are record figures for both the exchanges. However currency futures on BSE have hardly seen any substantial volumes of trade.

There is a fear among certain sections that the higher trading volumes could add to the rupee-dollar exchange rate volatility. But analysts said this was not warranted, as high volatility has been seen across all the asset classes in recent times.

More Stories on : Financial Markets | Derivatives Markets | Forex

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