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C. Raja Rajeshwari

Some interesting trends that were evident in the derivatives market in 2003 are:

# Near-month contracts are the most active out of the three contracts available at any time. This is primarily due to liquidity and pricing concerns. The next-month contracts used to turn active only 2-3 days prior to the expiry of the near-month contracts. This trend has, however, undergone a change this year due to the heightened trading activity. The second-month contracts on actively traded underlyings such as Tata Steel, SBI, Reliance and Tata Motors have now started to attract heavy trading interest far ahead of the expiry date.

# On an average, the top ten contracts contribute close to 45 per cent of the turnover.

# The derivatives market has become the bastion of day traders and arbitrageurs leading to an increase in intra-day volatility levels.

# On an average, top ten members contribute for about 23 per cent of volumes in the futures segment and about 29 per cent in options. Together, they account for more than half of the derivatives turnover on the NSE.

# The number of traders who have a monthly traded value of more than Rs 500 crore has increased to 143 now as compared with 54 in 2002.

# Futures contracts on stocks dominate the trading volumes. Given the number of stocks on which contracts have been allowed, this is not a surprise.

# The gap between the volumes in the futures and options segments has widened.

# Trading interest in low-priced futures such as Bank of India, Andhra Bank and Shipping Corporation of India has been substantial. Since, initial margin and exposure margins have been revised upwards, they account for the most of the capital brought in by market players. As a result, the leverage effect of the derivatives has been neutralised to an extent. Hence, activity in high-priced futures and options, and on contracts, which attract higher margins, are largely dominated by a small number of well-endowed players.

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