BSE to launch new derivative product CFS to derisk arbitrage

BSE will soon launch a new derivative product -- Cash-Future Spread (CFS)--aimed at eliminating trade execution risk by offering interest rate type of a product.

The trial runs for this first of its kind product will start from August 1. CFS will be in operation from August 6 and will be made available for all stocks in BSE's derivative segment, a top official said here.

"Having a single product for cash-future trade that eliminates execution risk has an interesting outcome for the investors by offering them an interest rate type of product.

"It shall be launched on August 6," BSE Interim CEO Ashishkumar Chauhan told PTI at the sidelines of a road-show ahead of the launch.

"Presently, it is usually done by way of doing cash and future trades separately, but there is a sort of an execution risk there when you trade in such a way," he said.

Cash leg of the trade under CFS will be settled by delivery on two days after the transaction as prevalent now. The futures leg, if open till expiry, will be settled by delivery three days after it.

"When the stock markets are not doing so well, the interest rate products end up going up...CFS product, we can see a lot of demand coming," Chauhan said.

At present, those wanting to take advantage of the spread between cash and futures have to enter four different trades - they buy in futures and sell in cash and then reverse the trade to square off the position, he said.