The derivative to cash volumes for the National Stock Exchange (NSE) at the end of July stood at 421 times, substantially higher than all other markets, and a significant jump from 237 times last year.

For Germany’s Deutsche Boerse, which is the closest in the metric, the ratio was 36x. Israel’s Tel-Aviv Stock Exchange and South Korea’s Korea Exchange were next with ratios of 16.6x and 12x, respectively, said a report by ICICI Securities.

The surge in derivatives volumes is the result of increasing penetration in tier 2 and tier 3 cities, rise of digital brokers, higher participation from retail investors and weekly expiry contracts.

Notably, a recent study by the Securities and Exchange Board of India showed that the number of individual traders in the equity F&O segment rose 500 per cent to 4.5 million at the end of FY22 from 7.1 lakh during FY19. What’s more, 90 per cent of individual traders in this segment incurred net losses.

In absolute terms, NSE saw an average daily turnover (ADTV) of over Rs 3 trillion in July and August. NSE’s options ADTV remained flattish in August at ₹302 trillion, according to the ICICI Securities report.

BSE options volumes, which were non-existent between January and May this year, rose above Rs 10 trillion (ADTV on notional basis) in August for the first time, following changes such as lower ticket size and introducing Friday expiry.

“BSE has made good progress in derivatives; August index option ADTV is 3.5 per cent of NSE. The triggers ahead will be an addition of brokers and the gradual increase in rates,” the report said.

Options trading has become a cash cow for NSE. Equity derivatives constituted 88 per cent of NSE transaction revenues at the end of FY23, while index options contributed 73 per cent. The revenue share for index options was 21 per cent in FY18. Share of cash revenue, on the other hand, went down from 26 per cent in FY18 to 9 per cent in FY23.

NSE index option premium turnover mix for FY23 was 34 per cent for Nifty, 63 per cent for Bank Nifty, and 3 per cent for FIN Nifty. “Using this as a measure, index option revenue mix would also be identical underlining the high contribution of Bank Nifty which could be driven by the high volatility of the index,” the report said.

NSE’s cash ADTV increased by 32.1 per cent year-on-year in August to ₹766 billion. BSE saw an increase in its cash ADTV by 47.9 per cent YoY to ₹69 billion.

NSE announced a revision in the expiry days for futures and options contracts of Bank Nifty and Nifty Midcap Select. Weekly Bank Nifty contracts will expire on Wednesday starting September 4. Nifty Midcap Select’s weekly as well as monthly F&O contracts expiry has been shifted from Wednesday to Monday. BSE shifted expiry of Sensex and Bankex F&O contracts to Friday. It has now moved expiry of Bankex contracts to Monday from October 16.

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