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Ravi Ranjan Prasad

Mumbai, Aug. 18 IN a falling market, broking firms appear to be taking a higher exposure in the Futures and Options (F&O) Segment as proprietary traders.

An analysis of NSE data for the past one year indicates that proprietary trade (done on broker’s account) as a percentage of total turnover in the F&O segment has gone up to 31.69 per cent in July 2008 as compared to around 23 per cent in December and January, a time when the equity market touched an all-time high.

Between February and July 2008, the proprietary trade has gone up consistently from 23.54 per cent to 31.69 per cent. In absolute value terms too, their gross trade value increased from Rs 4.23 lakh crore in February 2008 to Rs 7.32 lakh crore by July.

A year back in July 2007 too, the proprietary trade contributed only 25.55 per cent of total turnover in the F&O segment on NSE.

“Most of the brokerage’s earnings have been hit in the June quarter; they had either a marginal rise or dip in their net profit and they are adopting aggressive trading strategy to make up for the losses,” said an analyst.

“It is safer to trade in F&O segment during a volatile market where the positions can be squared off on the same day even with minor losses than in the cash segment where the settlement is on T+2 basis and there is more uncertainty on how the market will behave in those two days,” said official with a broking firm.

There are also instances of front-running among the brokerages that have large institutional clients that trade in big blocks. This may have resulted in a rise in the proprietary trade, the official said.

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